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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER


PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

March 19, 2015

BHP BILLITON LIMITED BHP BILLITON PLC


(ABN 49 004 028 077) (REG. NO. 3196209)
(Exact name of Registrant as specified in its charter) (Exact name of Registrant as specified in its charter)

VICTORIA, AUSTRALIA ENGLAND AND WALES


(Jurisdiction of incorporation or organisation) (Jurisdiction of incorporation or organisation)

171 COLLINS STREET, MELBOURNE, NEATHOUSE PLACE, VICTORIA, LONDON,


VICTORIA 3000 AUSTRALIA UNITED KINGDOM
(Address of principal executive offices) (Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

x Form 20-F ¨ Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to
Rule 12g3-2(b) under the Securities Exchange Act of 1934:

¨ Yes x No

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): n/a

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This document (the “South32 Listing Document”), which comprises a prospectus Prospective investors should read the whole of this document and, in
relating to South32 Limited (“South32” or the “Company”), prepared particular, the discussion of certain risks and other factors that should be
in accordance with the UKLA Prospectus Rules made under section 73A of considered in connection with an investment in the South32 Shares as set out
FSMA, has been approved by the Financial Conduct Authority in accordance with in the Risk Factors section.
section 87A of FSMA and has been made available to the public in accordance
with Rule 3.2 of the UKLA Prospectus Rules. This document has been prepared
in connection with the admission of the South32 Shares to the Official List and to
trading on the London Stock Exchange. It is proposed that United Kingdom South32 Limited
Admission will take place shortly after the demerger of South32 becomes effective. (incorporated in Australia under the
Australian Corporations Act with
South32 and the South32 Directors, whose names appear in Section 8.1(a) of this Australian Company Number 093 732 597)
document, accept responsibility for the information contained in this document,
(the liability of South32 and the South32 Directors being subject to certain
indemnities BHP Billiton Limited has agreed to provide South32 as described in
section 14.4 of this document). Prospectus

BHP Billiton Limited accepts responsibility for the information contained in this
document save for the information contained in Sections 5.2, 5.3, 5.5, 7.7, 8.1 to
Admission to the standard segment of the Official List
8.6 and 8.8 (as well as information included in other sections of this document
and to trading on the London Stock Exchange of the
which substantially replicates, derives from or summarises the information referred
entire issued share capital of South32 Limited
to these sections).

To the best of the knowledge of South32, BHP Billiton Limited and the South32
Directors (who have taken all reasonable care to ensure that such is the case), the The South32 Shares have not been marketed to and are not available for purchase,
information contained in this document is in accordance with the facts and contains in whole or in part, by the public in the United Kingdom or elsewhere in
no omission likely to affect the import of such information. connection with the Demerger. This document does not constitute or form part of
any offer or invitation to sell or issue, or any solicitation of any offer to purchase or
Application will be made to the FCA for all of the issued and to be issued shares of subscribe for any securities.
South32 to be admitted to the standard listing segment of the Official List and to
the London Stock Exchange for the South32 Shares to be admitted to trading on The distribution of this document and the issue of the South32 Shares in certain
the London Stock Exchange’s main market for listed securities, which together will jurisdictions may be restricted by law. No action has been taken or will be taken to
constitute official listing on a stock exchange under the UKLA Listing Rules permit the possession or distribution of this document in any jurisdiction where
(together, the “United Kingdom Admission”). It is expected that, subject to action for that purpose may be required. Accordingly, this document may not be
completion of the Demerger, the United Kingdom Admission will become distributed or published in any jurisdiction except under circumstances that will
effective and that dealings on the London Stock Exchange in the South32 Shares result in compliance with any applicable laws and regulations. Persons into whose
will commence at 8.00 a.m. (London time) on 26 May 2015 (ISIN: possession this document should come in overseas territories are required to inform
AU000000S320). Conditional dealings in the South32 Shares are expected to themselves about and observe any restrictions on the issue of the South32 Shares
commence on the London Stock Exchange on 18 May 2015. Dealings on the and the distribution of this document. Any failure to comply with these restrictions
London Stock Exchange before United Kingdom Admission will only be settled if may constitute a violation of the securities laws of any such jurisdiction.
United Kingdom Admission takes place. All dealings before the commencement of
unconditional dealings will be on a “when issued” basis and will be of no effect if BHP Billiton Shareholders who are Ineligible Overseas Shareholders will not
United Kingdom Admission does not take place and such dealings will be at the receive South32 Shares under the Demerger. South32 Shares that would otherwise
sole risk of the parties concerned. be transferred to these shareholders under the Demerger will be transferred to the
Sale Agent to be sold, with the net proceeds of such sale to be paid to Ineligible
Application will also be made to the ASX for quotation of the South32 Shares (the Overseas Shareholders. Refer to the Shareholder Circular for further information.
“ASX Admission”). It is expected, subject to completion of the Demerger, that the
ASX Admission will become effective and that deferred settlement trading on the Notice to prospective South32 Shareholders in the United States
ASX of the South32 Shares will commence at midday (AEST) on 18 May 2015.
Application will also be made to the JSE for the South32 Shares to be admitted to The South32 Shares have not been and will not be registered under the US
listing and trading on the Main Board of the JSE (the “South African Securities Act. Please refer to Section 3.8 of this document.
Admission”). It is expected, subject to completion of the Demerger, that the South
African Admission will become effective and that dealings on the JSE in the The South32 Shares have not been approved or disapproved by the US Securities
Letters of Allocation will commence at 9.00 a.m. (SAST) on 18 May 2015. and Exchange Commission (“SEC”), any state securities commission in the United
States or any US regulatory authority, nor have any of the foregoing authorities
This document does not constitute an offer to sell, or the solicitation of an passed upon or endorsed the merits of the offering of the South32 Shares or the
offer to buy, any security. accuracy or adequacy of this document. Any representation to the contrary is a
criminal offence in the United States.

Certain terms used in this document are defined in the “Definitions” section of this
document.

References to the singular in this document shall include the plural and vice versa,
where the context so requires. References to sections or Parts are to sections or
Parts of this document.

All references to time in this document are to London times unless otherwise
stated.

The date of this document is 16 March 2015.

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CONTENTS

1 SUMMARY 1
2 RISK FACTORS 9
2.1 External risks relating to the industries in which South32 operates 9
2.2 Operational risks 12
2.3 Business risks 15
2.4 Financial risks 15
2.5 Sustainability risks 16
2.6 General risks relating to the South32 Shares 18
3 IMPORTANT INFORMATION 21
3.1 General 21
3.2 Preparation of, and responsibility for, this document 21
3.3 Investment decisions 22
3.4 Forward looking statements 22
3.5 Presentation of financial information 23
3.6 Independent Competent Persons’ Reports 24
3.7 Credit rating 24
3.8 Notice to BHP Billiton Shareholders outside Australia, the United Kingdom and South Africa 24
3.9 Where to find help 24
4 KEY TRADING DATES 25
5 SOUTH32 OVERVIEW 27
5.1 Introduction 27
5.2 South32 organisational structure 31
5.3 Strategy 32
5.4 Key strengths 32
5.5 Dividend policy 35
6 MARKET OVERVIEW 37
6.1 Bauxite, alumina and aluminium industry 37
6.2 Energy coal industry 38
6.3 Metallurgical coal industry 39
6.4 Manganese industry 41
6.5 Nickel industry 42
6.6 Silver, lead and zinc industry 44
7 SOUTH32 BUSINESS DESCRIPTION 47
7.1 South32 Businesses 47
7.2 Summary of Mineral Resources and Ore Reserves information 81
7.3 Description of joint ventures and other interests held by South32 92
7.4 South32 marketing 93
7.5 Employees 94
7.6 Government regulation overview 96
7.7 Health, Safety, Environment and Community 96

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8 DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE 99


8.1 Directors 99
8.2 Senior management 101
8.3 Shareholdings and interests of South32 Directors, senior management and other specified persons 105
8.4 Conflicts of interest 106
8.5 Confirmations 106
8.6 Business address 106
8.7 Equity Incentive Plans 106
8.8 Corporate governance 110
9 SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION 115
9.1 Overview 115
9.2 Summary of South32’s historical combined financial information 116
9.3 Capitalisation and indebtedness statement 117
10 SUMMARY OF PRO FORMA HISTORICAL FINANCIAL INFORMATION 119
10.1 Overview 119
10.2 Basis of preparation 119
10.3 South32 summary pro forma historical consolidated income statements 121
10.4 South32 summary pro forma historical consolidated cash flow statements before financing activities and tax and after capital expenditure 122
10.5 South32 pro forma historical consolidated balance sheet 123
10.6 Debt facilities 125
10.7 Pro forma net indebtedness summary 126
10.8 Accounting judgements and estimates 126
10.9 Taxation 128
11 OPERATING AND FINANCIAL REVIEW AND PROSPECTS 129
11.1 Introduction 129
11.2 External factors and trends affecting South32’s results 131
11.3 Operating results – Underlying Earnings 138
11.4 Consolidated results – overview 138
11.5 Operating results 139
11.6 Business performance 147
11.7 Third party sales 159
11.8 Cash flow analysis 160
11.9 Net debt and sources of liquidity 161
12 INDEPENDENT ACCOUNTANT’S ASSURANCE REPORT 163
13 TAXATION 171
13.1 Important information 171
13.2 Australian tax consequences of holding South32 Shares 171
13.3 United Kingdom tax consequences of holding South32 Shares 173
13.4 United States federal income tax consequences of holding South32 Shares or South32 ADSs 174
13.5 South African tax consequences of holding South32 Shares 175
13.6 New Zealand tax consequences of holding South32 shares 176
14 INFORMATION ON THE DEMERGER 177
14.1 Introduction 177
14.2 Internal Restructure 177
14.3 Implementation of the Demerger 178
14.4 Demerger Agreements 178

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15 ADDITIONAL INFORMATION 183


15.1 Incorporation and activities of South32 183
15.2 Corporate history 183
15.3 Share capital of South32 183
15.4 Summary of South32’s Constitution 185
15.5 Listing 188
15.6 South32 shareholdings 188
15.7 Trading your South32 Shares 192
15.8 Foreign ownership and other shareholding restrictions – general 193
15.9 South African exchange control limitations affecting shares 193
15.10 ASX, ASIC, JSE and SARB waivers, confirmations and relief 195
15.11 Government protections and investment encouragement laws 196
15.12 Organisational structure 196
15.13 Details on South32 Directors and senior management 197
15.14 Pensions 199
15.15 Litigation 199
15.16 Material contracts 200
15.17 Material royalties 200
15.18 Property, plant and equipment 200
15.19 Significant change 200
15.20 Working capital statement 200
15.21 Announcement of completion of the Demerger and the admission of South32 Shares 200
15.22 Consents 201
15.23 Independent Competent Persons’ and Competent Persons’ interests in BHP Billiton Shares 202
15.24 Related party transactions 203
15.25 No incorporation of website information 203
15.26 Costs and expenses 203
15.27 Sources and bases of selected financial and other information 204
15.28 Documents available for inspection 204
16 DEFINITIONS AND GLOSSARY OF TECHNICAL TERMS 205
16.1 Definitions 205
16.2 Units of measure 212
16.3 Terms used in relation to reserves and resources 212
16.4 Rounding 212

ANNEXURES 213
Annexure 1 – Historical combined financial information for the years ended 30 June 2014, 30 June 2013 and 30 June 2012 for South32 215
Annexure 2 – Half year historical combined financial information for the Half Year periods ended 31 December 2014 and 31 December 2013 for South32 275
Annexure 3 – South32 pro forma historical consolidated income statement and cash flow statement reconciliations 295
Annexure 4 – South32 pro forma segment reporting 299
Annexure 5 – Selected financial metrics for the past 10 financial years 303
Annexure 6 – Independent Competent Persons’ Reports 311

CORPORATE DIRECTORY IBC

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1 SUMMARY
The information in this document has been prepared to meet the disclosure requirements associated with the admission to trading of South32’s ordinary shares on the ASX,
JSE and LSE (as noted in Section 15.10(b), ASIC has granted an exemption from the prospectus provisions in the Corporations Act and this document is not a prospectus
under the Corporations Act). It therefore reflects and meets the disclosure requirements of three jurisdictions.

The form and content of the summary below are prescribed by European Union Regulation and are required to be included for the purposes of the admission of the South32
Shares to trading on the LSE. The statements in Section A.1 in relation to claims based on the summary are only applicable where claims are brought on the basis of the UK
Prospectus and do not alter the rights or liabilities of any person in relation to the information memorandum for the purposes of the listing of South32 Shares on the ASX or
the pre-listing statement for the purposes of the listing of South32 Shares on the JSE.

Summaries are made up of disclosure requirements known as ‘Elements’. These Elements are numbered in Sections A–E (A.1–E.7).

This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed,
there may be gaps in the numbering sequence of the Elements.

Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given
regarding the Element. In this case, a short description of the Element is included in the summary with the mention of ‘not applicable’.

SECTION A – INTRODUCTION AND WARNING


A.1 Warning
This summary should be read as an introduction to this document. Any decision to invest in South32 Shares should be based on consideration of this document as a whole by
the investor. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of the
member states of the European Economic Area, have to bear the costs of translating this document before the legal proceedings are initiated. Civil liability attaches only to
those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with other
parts of this document or it does not provide, when read together with other parts of this document, key information in order to aid investors when considering whether to
invest in such securities.

A.2 Any consents to and conditions regarding use of this document


Not applicable.

SECTION B – ISSUER
B.1 Legal and commercial name of the company
South32 Limited

B.2 Domicile and legal form of the company


South32 is a public company incorporated in Australia on 12 July 2000 (formerly known as BHP Coal Holdings Pty Limited) and registered under the Corporations Act.

B.3 Description of South32’s current operations and principal activities


Following implementation of the Demerger, South32 will be a globally diversified metals and mining company with a portfolio of assets producing alumina, aluminium,
coal, manganese, nickel, silver, lead and zinc. South32 will have multiple large assets, the majority of which are competitively positioned in the first or second quartile of
their respective industry cost curves. South32’s operated assets will have the advantage of having historically been managed and maintained in accordance with BHP
Billiton’s standards and practices.

South32’s portfolio will comprise of the South32 Businesses, which are:


• Worsley Alumina: an 86 per cent interest in an integrated bauxite mining and alumina refining operation located in Western Australia, Australia;

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• South Africa Aluminium: a 100 per cent interest in the Hillside smelter near Richards Bay, South Africa. The business previously included the Bayside smelter,
which was closed in FY2014, and Bayside casthouse. An agreement has been reached for the sale of the assets comprising the Bayside casthouse (the sale is subject to
certain regulatory and other conditions, which are expected to be fulfilled in the first half of CY2015);
• Mozal Aluminium: a 47.1 per cent interest in the Mozal Aluminium smelter located near Maputo, Mozambique;
• Brazil Aluminium: a 14.8 per cent interest in the Mineração Rio do Norte open-cut bauxite mine (MRN Mine), as well as a 36 per cent interest in the Alumar
alumina refinery and a 40 per cent interest in the Alumar aluminium smelter (together with certain interests in ancillary facilities and lands);
• South Africa Energy Coal: a 90 per cent interest in four operating energy coal mines in the Witbank region in the Mpumalanga province of South Africa;
• Illawarra Metallurgical Coal: a 100 per cent interest in three underground metallurgical coal mines located near Wollongong in New South Wales, Australia;
• Australia Manganese: a 60 per cent interest in the Groote Eylandt Mining Company (GEMCO) open-cut manganese mine and the Tasmanian Electro Metallurgical
Company (TEMCO) manganese alloy plant. GEMCO is located in the Northern Territory, Australia near port facilities at Milner Bay, and TEMCO is located in
Tasmania, Australia, near the Bell Bay wharf;
• South Africa Manganese: a 44.4 per cent effective interest in the Mamatwan open-cut mine and the Wessels underground mine (collectively known as the Hotazel
Mines) and a 60 per cent interest in the Samancor Manganese Metalloys alloy plant (Metalloys). The Hotazel Mines are located near the town of Kuruman, South
Africa;
• Cerro Matoso: a 99.94 per cent interest in an open-cut lateritic nickel mine and ferronickel smelter located near Montelibano, in the Córdoba Department in northern
Colombia;
• Cannington: a 100 per cent interest in a silver, lead and zinc underground mine and concentrator operation located in northwest Queensland, Australia, approximately
200 km southeast of Mount Isa.

B.4a Description of significant trends affecting the company and the industries in which it operates
As a company which mines and produces commodities used in a range of manufacturing and industrial processes, South32 is exposed to fluctuations in the prices of its key
commodities. Global demand and supply for the commodities the South32 Businesses produce are key drivers of commodity prices, and fluctuations in product demand and
supply therefore affect South32’s results, including cash flows and asset values.

B.5 Description of the South32 Group and the company’s position within it
South32 is an Australian public company, which will be the holding company of the South32 Group. As at the date of this document, South32 is a wholly-owned subsidiary
of BHP Billiton Limited. As part of the Demerger, South32 will be separated from the BHP Billiton Group to operate as a standalone entity.

South32 will be headquartered in Perth, Australia, with its Australian operations managed from Perth and African operations managed from a regional head office in
Johannesburg, South Africa. South32 will also have a global shared service centre located in Johannesburg, South Africa.

B.6 Interests in the company and voting rights


As at 14 March 2015 (being the latest practicable date prior to the publication of this document), the entire issued share capital of South32 is held by BHP Billiton Limited.
Following the Demerger, the shareholders of South32 shall be the same as the shareholders of BHP Billiton as at the relevant Record Date, except where BHP Billiton
Shareholders are Ineligible Overseas Shareholders or elect to sell their South32 Shares pursuant to the Sale Facility.

To the knowledge of South32 and BHP Billiton Limited:


• BHP Billiton is not (and therefore South32, immediately following the Demerger, will not be) directly or indirectly majority owned or controlled by another
corporation or by any foreign government.
• Immediately following the implementation of the Demerger, there is no person who, directly or indirectly, jointly or severally, will exercise or could exercise control
over South32.
• There are no arrangements the operation of which may at a subsequent date result in a change in control of BHP Billiton or South32 (other than as a result of
implementation of the Demerger).
• No public takeover offers by third parties have been made in respect of BHP Billiton’s shares during the current and preceding financial year.

As at 14 March 2015 (being the latest practicable date prior to the publication of this document), to the knowledge of South32 and BHP Billiton Limited, there are no persons
that are directly or indirectly interested in five per cent or more of the issued shares in BHP Billiton Limited and the following persons are directly or indirectly interested in
three per cent or more of the issued shares in BHP Billiton Plc:
• Aberdeen Asset Managers Limited, which holds 157,061,561 shares of which it controls voting rights in respect of 127,971,161 shares, representing 6.06 per cent of
the BHP Billiton Plc Shares on issue (as notified on 13 March 2015);
• BlackRock Inc, which holds and controls voting rights in respect of 213,014,043 shares, representing 10.08 per cent of the BHP Billiton Plc Shares on issue (as
notified on 3 December 2009),
and none of the shareholders referred to above has or will have different voting rights from any other holder of South32 Shares in respect of any South32 Shares held by
them.

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B.7 Selected historical combined financial information


The table below sets out summary historical combined financial information for the six months ended 31 December 2014 (H1 FY2015) and the six months ended
31 December 2013 (H1 FY2014), which has been extracted from the historical combined financial information of the South32 Group set out in Annexure 2, and for the
twelve months ended 30 June 2014 (FY2014), the twelve months ended 30 June 2013 (FY2013) and the twelve months ended 30 June 2012 (FY2012), which has been
extracted from the historical combined financial information of the South32 Group set out in Annexure 1.

Table 1.1: Selected summary South32 historical combined financial information

6 months ended
December 12 months ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Income statement information
Revenue 5,040 5,348 10,444 12,093 13,835
Profit/(loss) from operations 1,251 554 774 (963) 2,060
Profit/(loss) before taxation 1,214 446 422 (1,096) 2,018
Profit/(loss) after taxation 738 358 217 (1,304) 1,433
Other financial information(a)
Underlying EBITDA 1,306 976 2,055 2,118 2,831
Underlying EBIT 800 510 1,070 1,154 1,926
Underlying Earnings 534 369 614 755 1,258
Cash flow information
Cash generated from operations 1,131 781 2,108 2,138 2,899
Less interest and tax, net of dividends received 118 (288) (438) (712) (506)
Net operating cash flows 1,249 493 1,670 1,426 2,393
Capital expenditure (411) (394) (769) (1,139) (2,013)
Net operating cash flows after capital expenditure 838 99 901 287 380
Balance sheet information
Current assets 12,630 5,361 5,002 5,236 7,544
Non-current assets 14,093 14,322 14,688 14,307 16,468
Total assets 26,723 19,683 19,690 19,543 24,012
Current liabilities 1,936 2,601 2,133 2,764 3,194
Non-current liabilities 7,240 6,793 7,737 6,659 7,006
Total liabilities 9,176 9,394 9,870 9,423 10,200
Net assets/Total invested capital 17,547 10,289 9,820 10,120 13,812

(a) Underlying Earnings is the key measure that South32 proposes to use to assess the performance of South32, make decisions on the allocation of resources and assess
senior management. In addition, the performance of each of the South32 Businesses and operational management will be assessed based on Underlying EBIT.
Underlying EBITDA and Underlying EBIT are calculated based on the accounting policies that South32 proposes to use when discussing its operating results in future
periods. Refer to note 2 Segment reporting of Annexure 1 for further details of this approach. The accounting policies proposed by South32 for calculating these
measures differ from those currently used by BHP Billiton, the key differences being that South32 will adjust for certain items each period, irrespective of materiality,
and South32 management will retain the discretion to adjust for other significant non-recurring items that are not considered to reflect the underlying performance of
the assets it holds.

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The significant changes to South32’s financial condition and operating results during or subsequent to the period covered by the historical combined financial information set
out above, to the date of this document, are as follows:
• reductions in operating costs, including the benefit of a stronger US dollar, have resulted in improved profitability during H1 FY2015;
• there was a year on year decrease in revenue in FY2014 of US$1,649 million and US$1,742 million in FY2013. The primary cause was a fall in prices for most
commodities over these periods, which in turn led to a significant decrease in profit attributable to shareholders;
• the fall in commodity prices had an impact on asset values across the period. A decline in export prices for energy coal resulted in impairments booked against the
South Africa Energy Coal assets in FY2014 of US$292 million. The strength in the Australian dollar and weak alumina prices at the time led to a reduction in the asset
value of Worsley Alumina in FY2013 of US$2,190 million;
• cost pressures impacted operating margins leading to the cessation of some smelting activities at South Africa Aluminium in June 2014. Closure costs of US$167
million were recorded in FY2014 in relation to the cessation of production;
• as part of a regular portfolio review in June 2012, various operations and projects were either suspended or closed early. These included: the temporary suspension of
production at Australia Manganese, the permanent closure of the Metalloys South Plant at South Africa Manganese and the termination of the Samancor Manganese
Gabon project, resulting in the recognition of US$93 million in asset write-downs;
• the move to joint control arising from changes to the joint venture arrangements for the Manganese Business effective from 2 March 2015 resulted in a gain of
approximately US$2 billion recorded after 31 December 2014 and the subsequent equity accounting for South32’s interest in the Manganese Business;
• certain other adjustments resulting from the Internal Restructure in preparation for the Demerger, including tax charges;
• as part of the Internal Restructure during H1 FY2015 there was an issue of shares to BHP Billiton Limited of US$8 billion to capitalise South32 to enable the
acquisition of the companies that will comprise the South32 Group. The proceeds were primarily placed on deposit with BHP Billiton.

B.8 Selected pro forma historical financial information


The following is a summary of South32 pro forma historical financial information for the periods, which has been prepared to illustrate the effect:
(a) on the income statement and cash flow statement of the move to joint control of the Manganese Business and the impact of the Demerger (including adjustments to
reflect reversal of intercompany net financing costs and dividends), as if they had occurred on 1 July 2013;
(b) on the balance sheet, of the move to joint control of the Manganese Business and the Demerger (including adjustments to reflect settlement of intercompany balances
between South32 and BHP Billiton and Demerger set up costs to be incurred by South32 after the Demerger takes effect), as if they had occurred on 31 December
2014.

The South32 pro forma historical financial information has been prepared, and is intended, for illustrative purposes only. It addresses a hypothetical situation and therefore
does not purport to reflect South32’s actual financial performance or the actual financial position that South32 would have achieved if South32 had operated as a standalone
entity for the periods presented.

Table 1.2: Selected summary of South32’s pro forma historical income statement and cash flow information(a)

6 months 12 months
ended December ended June
US$M H1 FY2015 FY2014
Income statement information
Revenue 4,089 8,344
Profit from operations 724 337
Profit before taxation 729 150
Profit after taxation 306 103
Basic earnings per share (US cents) 5.75 1.93
Other financial information
Underlying EBITDA 1,065 1,483
Underlying EBIT 648 660
Underlying Earnings 442 446
Underlying basic earnings per share (US cents) 8.30 8.38

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6 months 12 months
ended December ended June
US$M H1 FY2015 FY2014
Cash flow information
Cash generated from operations 929 1,419
Dividends received (including equity accounted investments) 131 206
Capital expenditure (317) (590)
Net operating cash flows before financing activities and tax and after capital expenditure 743 1,035

(a) As described in Section 10.2, no pro forma adjustments have been made to South32’s pro forma historical consolidated income statements or cash flow information to
reflect the anticipated additional corporate overhead costs or savings of South32 operating as a standalone entity or savings from implementation of South32 regional
operating model (refer to Section 11.2(d)).

Table 1.3: Selected summary of South32’s pro forma historical balance sheet information

South32 South32 pro forma


US$M 31 December 2014 Adjustments 31 December 2014
Balance sheet information
Current assets 12,630 (10,075) 2,555
Non-current assets 14,093 1,037 15,130
Total assets 26,723 (9,038) 17,685
Current liabilities 1,936 (201) 1,735
Non-current liabilities 7,240 (4,240) 3,000
Total liabilities 9,176 (4,441) 4,735
Net assets/Total invested capital 17,547 (4,597) 12,950

B.9 Profit forecast or estimate


Not applicable.

B.10 A description of the nature of any qualifications in the Independent Audit Report on the historical combined financial information
Not applicable. There are no qualifications to the Independent Audit Report on the historical combined financial information.

B.11 Working capital


Not applicable. South32 and its Directors are of the opinion that the South32 Group has sufficient working capital for its present requirements, that is for at least the next 12
months following the date of publication of this document.

SECTION C – SECURITIES
C.1 Types and class of securities being admitted to trading, including the security identification number
This document has been prepared in connection with the demerger of a selection of BHP Billiton Group’s alumina, aluminium, coal, manganese, nickel, silver, lead and zinc
assets into a separate company, South32. South32 will apply for admission of its ordinary shares to trading on the ASX, JSE and LSE.

Following the Demerger, South32 is expected to have a primary listing on the ASX and a secondary listing of all the issued South32 Shares in the general mining sector of
the main board of the JSE and all the issued South32 Shares will be admitted to the standard segment of the Official List and to trading on the LSE’s main market for
listed securities.

When admitted to trading on the ASX, JSE and LSE, the South32 Shares will be registered with an ISIN AU000000S320.

South32 will also establish an ADS program, but the South32 American Depositary Shares (ADSs) will not be listed on the New York Stock Exchange or any other securities
exchange in the United States and will trade over-the-counter.

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C.2 Currency of the securities in issue


The South32 Shares will be denominated in Australian dollars and quoted in Australian dollars on the ASX, South African rand on the JSE and pounds sterling on the LSE.
South32 ADSs will be denominated in US dollars.

C.3 Number of shares in issue and par value


Immediately following the implementation of the Demerger, the issued share capital of South32 will be equal to the aggregate number of BHP Billiton Limited Shares on
issue on the Limited Record Date and BHP Billiton Plc Shares on issue on the Plc Record Date. The South32 Shares will have no par value and, immediately following
implementation of the Demerger, all South32 Shares will be fully paid.

As at 14 March 2015 (being the latest practicable date prior to the publication of this document), there were 3,211,691,105 BHP Billiton Limited ordinary shares and
2,112,071,796 BHP Billiton Plc ordinary shares on issue.

C.4 Rights of securities


All the South32 Shares will rank pari passu in all respects, there being no conversion or exchange rights attaching thereto, and all of the South32 Shares will have equal
rights to participate in capital, dividend and profit distributions by South32.

C.5 Restrictions on the transferability of shares


There are no restrictions on the transferability of the South32 Shares imposed by the South32 Constitution.

C.6 Application for admission to trading on a regulated market


South32 will apply for its ordinary shares to be admitted to trading on the ASX, JSE and LSE.

South32 ADSs will not be listed on the New York Stock Exchange or any other securities exchange in the United States and will trade over-the-counter.

C.7 Dividend policy


The South32 dividend policy will be determined by the South32 Board at its discretion, having regard to South32’s first two priorities for cash flow, being a commitment to
maintain safe and reliable operations and an intention to maintain an investment grade credit rating through the cycle.

South32 intends to distribute a minimum of 40 per cent of Underlying Earnings as dividends to its shareholders following each six month reporting period. Consistent with
South32’s priorities for cash flow and commitment to maximise total shareholder returns, other alternatives including special dividends, share buy-backs and high return
investment opportunities will compete for excess capital.

South32 will distribute dividends with the maximum practicable franking credits for the purposes of the Australian dividend imputation system. The extent to which a
dividend can be franked will depend on South32’s franking account balance (which immediately following the Demerger will be nil) and its level of distributable profits.
South32’s franking account balance will depend on the amount of Australian income tax paid by South32 following the Demerger. The timing of South32’s Australian
income tax payments may also impact its capacity to frank any dividend declared for the half year ending 31 December 2015.

No assurance can be given in relation to the level of future dividends or the franking of such dividends (if any), as these will depend on future events and circumstances.

South32 does not intend to pay a dividend for the period ending 30 June 2015, which will conclude only one month after the implementation of the Demerger.

SECTION D – RISKS
D.1 Key information on key risks specific to South32 and the industries in which it operates
Externalrisks relating to the industries in which South32 operates
• The prices South32 obtains for its products are determined by, or linked to, prices in world commodity markets, which have historically been subject to substantial
volatility. In addition South32’s assets, earnings and cash flows are affected by a wide variety of currencies, with the US dollar being the currency in which the
majority of South32’s sales are determined, and South32’s operating costs are also influenced by the currencies of the countries in which it operates. Fluctuations in
commodity prices, currency exchange rates and impacts of ongoing global economic volatility may negatively affect South32’s results, including cash flows and asset
values.
• Actions by governments or political events could have a negative impact on South32 or the South32 Businesses. In particular, South32 or the South32 Businesses
could be adversely affected by new or changed government regulations, such as controls on imports, exports and/or prices and changes in fiscal legislation. In
addition, South32 or the South32 Businesses could be exposed to the risk of terrorism, civil unrest, nationalisation, renegotiation or nullification of existing contracts,
leases, permits or other agreements, particularly in emerging markets in which the South32 Businesses operate.

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• Audits and reviews by administrative bodies, in particular tax authorities, may result in South32 incurring additional tax or royalty payments. South32 is currently the
subject of a number of tax-related claims.

Operational risks
• South32 Businesses are dependent on access to infrastructure that is economical, and without such access these operations may be disrupted or further development
may be prevented. A number of factors could disrupt the availability of the services utilised by the South32 Businesses to transport products to customers, including
weather-related problems, rail or port capacity and allocation constraints, key equipment and infrastructure failures and industrial action.
• South32 Businesses are dependent on access to water and power that is economical. Such access to water and power may be disrupted or further development may be
prevented due to factors such as climate (including drought), changes in allocations, changes in activities or conditions at South32’s operations, elections by contract
counterparties to cease current arrangements, the term of contractual arrangements ending or changes in government policy.
• Unexpected natural or operational catastrophes may adversely impact South32’s operations or cause harm to its assets or equipment. In particular, the South32
Businesses rely on access to key port and rail infrastructure which may be subject to port, shipping or rail incidents and include six underground mines that can be
exposed to incidents such as fire and explosion, loss of power supply and critical equipment failures.

Business risks
• Failure to maintain, realise or enhance existing reserves, discover new reserves or develop new operations could negatively affect South32’s future results and
financial condition. Production from South32’s operations results in existing reserves being depleted over time. The volume and quality of product the South32
Businesses recover may be less than South32 or Competent Persons have estimated. In addition, Mineral Resources and Ore Reserves estimates are expressions of
judgement based on knowledge, experience and industry practice, among other things.

Financial risks
• South32 is required in its financial statements to include provisions for the expected closure and rehabilitation costs of its operations. Closure and rehabilitation costs
require significant judgements and estimates and are therefore subject to change. South32 and its management consider its closure and rehabilitation provisions to be
appropriate based on currently available information (including estimated closure dates) and certain assumptions. However, given inherent uncertainties, the future
actual expenditure may differ from the amounts currently provided.
• One or more of the South32 Businesses may be affected by changed market or industry structures, commodity prices, technical operating difficulties, inability to
recover its Ore Reserves or increased operating cost levels. These may cause South32 to fail to recover all or a portion of its investment in mining assets and may
require financial write-downs, adversely impacting financial results.

Sustainability risks
• South32 and/or its workforce may be adversely affected by health and safety and environmental risks in respect of its activities. Longer-term health impacts may arise
due to the exposure of the South32 workforce to hazardous substances. Potential safety events that may have an adverse impact on South32’s operations may occur. In
addition South32’s operations, by their nature, have the potential to impact biodiversity, land, water resources and related ecosystems including from the discharge of
contaminants.
• South32’s operations are exposed to a range of water and waste water management risks, including water scarcity, water excess, water quality, water discharge or
discharge into ground water issues. Some assets are more prone than others to these water management-related risks.
• South32 Businesses may be disrupted without the support of the local communities in which they are located. Notwithstanding South32’s contributions to the
communities in which the South32 Businesses are located, local communities may become dissatisfied with the impact of South32’s operations or oppose new
development projects, including through litigation, which may affect costs and production, and, in extreme cases, viability of the relevant operation or project.

D.3 Key information on the key risks that are specific to South32 Shares
• South32 Shareholders should be aware that there are risks associated with investment in financial products quoted on a stock exchange. Share price movements could
affect the value of any investment in South32.
• The South32 Shares will be quoted in Australian dollars on the ASX, South African rand on the JSE and pounds sterling on the LSE. Dividends in respect of South32
Shares, if any, will be declared in US dollars. Fluctuations in the exchange rate between the US dollar and each of these currencies will affect, among other matters,
the local currency value of the South32 Shares and of any dividends.
• The rights of South32 Shareholders are governed by Australian law and may differ from the rights available to shareholders under the laws of South Africa, the United
Kingdom or the United States.

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SECTION E – OFFER
E.1 Proceeds of the issue/offer
Not applicable. This document does not constitute an offer or invitation to any person to subscribe for or purchase any shares in South32. BHP Billiton and South32 will not
receive any proceeds as a result of the Demerger.

E.2a Reasons for the issue/offer and use of proceeds


Not applicable. This document does not constitute an offer or invitation to any person to subscribe for or purchase any shares in South32. South32 will apply for its ordinary
shares to be traded on the ASX, JSE and LSE, in connection with the Demerger. South32 will not receive any proceeds as a result of the Demerger.

E.3 Terms and conditions of the offer


Not applicable. This document does not constitute an offer or invitation to any person to subscribe for or purchase any shares in South32.

E.4 Interests material to South32/the offer including conflicting interests


Certain South32 Directors and some of the Independent Competent Persons have shareholding interests in BHP Billiton and will therefore have shareholding interests in
South32 immediately following the Demerger. South32 does not consider the interests of the Independent Competent Persons to be sufficiently material to compromise their
independence. So far as the South32 Directors are aware, no other person involved in the Demerger has any interest, including conflicting ones, that are material to the
Demerger.

E.5 Name of persons offering to sell the securities

Lock-up agreements details, including the parties involved and indication of the period of the lock-up
Not applicable.

E.6 Amount and percentage of immediate dilution resulting from the offer
Not applicable.

E.7 Estimated expenses charged to the investor by South32


Not applicable.

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2 RISK FACTORS
In addition to the other information set out in this document, the following risk factors should be carefully considered. The risks and uncertainties described below represent
those the South32 Directors consider to be material as at the date of this document. However, these risks and uncertainties are not the only ones facing South32 and the
South32 Businesses or relevant to an investment in South32 Shares. Additional risks and uncertainties not presently known to the South32 Directors, or that the South32
Directors currently consider to be immaterial, could also materially and adversely affect the business, results of operations, financial condition and/or prospects of South32.
In such case, the market price of the South32 Shares could decline and investors may lose all or part of their investment. Prospective investors in South32 Shares should
consider not only the information on key risks summarised in Section 1, but also, among other things, the risks and uncertainties described below.

Many of these are risks to which South32 and the South32 Businesses are already exposed, while others arise or are increased as a result of the Demerger and the ability to
take mitigating action may be more limited. Some of these risks may be mitigated by appropriate controls, systems and other actions as further described below, but others
will be outside the control of South32 and may not be able to be mitigated.

Investors and prospective investors should consider carefully whether an investment in South32 is a suitable investment in light of the information in this
document, their ability to bear risk and the financial resources available to them.

2.1 EXTERNAL RISKS RELATING TO THE INDUSTRIES IN WHICH SOUTH32 OPERATES


(a) Fluctuations in commodity prices and impacts of ongoing global economic volatility may negatively affect South32’s results, including cash flows and asset
values
The prices South32 obtains for its products are determined by, or linked to, prices in world commodity markets, which have historically been subject to substantial volatility.
Commodity prices are affected by underlying global economic and geopolitical factors, industry demand and supply balances, product substitution and national tariffs. In
particular, the Chinese market has been a key driver of global materials demand and pricing over the past decade. A slowing in China’s economic growth or additional supply
has the potential to adversely impact prices for many of South32’s products. South32’s exposure to a range of commodities and customers operating in different economies,
provides a level of diversification to partially protect against this risk.

(b) South32’s financial results may be negatively affected by currency exchange rate fluctuations
South32’s assets, earnings and cash flows are affected by a wide variety of currencies. The US dollar is the currency in which the majority of South32’s sales are determined
and its financial results will be reported. Operating costs are influenced by the currencies of those countries where South32 Businesses’ mines and processing plants are
located and also by those currencies in which the costs of imported equipment and services are determined. The Australian dollar, South African rand, Brazilian real,
Colombian peso and US dollar are the most important currencies affecting South32 Businesses’ operating costs. Fluctuations in the exchange rates of relevant currencies may
impact on South32’s financial results.

(c) Actions by governments or political events could have a negative impact on the business
South32 or the South32 Businesses could be adversely affected by new government regulations, such as controls on imports, exports and/or prices. Increasing requirements
relating to regulatory and environmental approvals may affect existing operations or potentially cause delays in and adversely affect the expansion of existing operations.
South32 could also be adversely affected by changes in fiscal legislation, as South32’s operations are based on material long-term investments that are dependent on long-
term fiscal stability.

In addition, South32 or the South32 Businesses could be exposed to the risk of terrorism, civil unrest, nationalisation, renegotiation or nullification of existing contracts,
leases, permits or other agreements, changes in laws and policy (including changes in exchange control policies regulating the repatriation of earnings or capital out of the
relevant jurisdiction) and governmental reviews and investigations (including historical tax audits), as well as other unforeseeable risks in the jurisdictions in which it
operates that could have an adverse impact upon the profitability of an operation. In particular, South32 has operations in emerging markets, where such risks are more
prevalent.

Potential government actions, reviews or policies that may have specific application to the South32 Businesses are set out below:
• The South African tax policy review by the Davis Commission, the outcomes of which are uncertain and may impact upon the financial results of South32’s
operations in South Africa.
• The Indonesian Government ban on export of unprocessed aluminium and nickel ores, which affects Chinese alumina and nickel pig iron production, may be reversed
at any time with potential changes to global supply balances and the prices South32 receives for some of its products.

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• Possible amendments to the Mineral and Petroleum Resources Development Act, which are under consideration by the South African Government through the
National Assembly. Furthermore, a review of compliance with the Mining Charter is also currently being undertaken by the Department of Minerals and Energy.
• In Brazil, the Executive Branch submitted to the Brazilian House of Representatives Bill of Law No 5.807/201 which, if and when approved, will replace the existing
Mining Code. Among other changes, the proposed bill of law provides for changes in the procedure for the granting of mineral exploration and concession rights, new
rules for the calculation of the Financial Compensation for the Exploitation of Mineral Resources (Compensação Financeia pela Exploracao de Recursos Minerais, or
CFEM) and the assessment of new taxes on mining activities. A new mining regulatory framework may result in limitations on the term of existing mining
concessions and in the tender of mining concessions if they are deemed by the Brazilian government to have strategic and economic importance.
• In February 2015, TEMCO was notified of a petition filed with the United States Department of Commerce and the United States International Trade Commission
requesting the imposition of antidumping duties on silicomanganese imports of Australian origin (of which TEMCO is the only producer). The petition is being
investigated at a preliminary phase by the Department of Commerce and the International Trade Commission and TEMCO intends to co-operate fully in the
investigations. TEMCO intends to vigorously contest the claims and strongly defend its position. An adverse outcome could potentially result in the imposition of
duties on the sale of TEMCO’s product into the United States, which could significantly impact demand for TEMCO’s product in that market and, as a result, could
impact TEMCO’s revenues.

(d) Challenges by administrative bodies, in particular tax authorities, may lead to additional liabilities for South32
Consistent with the general separation principles set out in Section 14.4(b), South32 will assume, and be responsible, for all tax liabilities relating to the South32 Businesses
and to the former South32 Businesses, subject to certain exceptions.
Audits and reviews by administrative bodies, in particular tax authorities, may result in South32 incurring additional tax or royalty payments.
Excluding tax exposures that will remain with BHP Billiton, there are certain material claims (or categories of claims) made by tax authorities to which South32 is exposed,
which are discussed in further detail below.

In Brazil there are eight separate disputes involving BHP Billiton Metais S.A. (BMSA) (a wholly-owned subsidiary of South32), which relate to the payment of Federal and
State Value Added Tax, which are currently the subject of proceedings in the Tax Administrative Court. The principal claims relate to non-payment of State Value Added Tax
by BMSA on interstate sales of aluminium to customers in the period from 2000 to 2004 and the use of Federal Value Added Tax credits relating to power supply by BMSA.
As at the date of this document, the estimated total amount being claimed against BMSA in respect of these eight matters is equal to approximately US$84 million.
BMSA is also currently disputing an adverse tax assessment in respect of social security contributions in the Tax Administrative Court. The assessment relates to social
security contributions not paid by BMSA during 2004 to 2007. BMSA’s position that social security contributions in respect of this period are not payable is based on a 1992
Federal Regional Court decision exempting BMSA from payment of the contributions on the basis that the tax was unconstitutional. The Supreme Court subsequently
decided in favour of the constitutionality of the tax in 2007. BMSA contests that the Supreme Court’s decision should not apply where a previous judicial decision has
exempted payment of the contributions, such as the exemption provided to BMSA pursuant to the Federal Regional Court’s decision in 1992. As at the date of this document,
the amount claimed in respect of this matter is equal to approximately US$105 million.
Cerro Matoso SA (CMSA) (a 99.94 per cent owned subsidiary of South32) is disputing an adverse assessment by the Colombian Revenue Service made in July 2014
concerning the non-taxation of revenue sales and deductibility of certain costs. The likely timing of the resolution of this matter is currently uncertain. As at the date of this
document, the amount claimed in respect of this matter is equal to US$60 million.
South Africa Energy Coal is disputing an adverse assessment by the South African Revenue Service made in September 2013 concerning the purchase price allocation for a
sale of assets that occurred in 2008. The likely timing of the resolution of this matter is currently uncertain. As at the date of this document, the amount claimed in respect of
this matter is equal to approximately US$53 million.
Certain other tax-related claims have been made in respect of the South32 Businesses, which are separate and none of which is considered to be individually material but
aggregate to a total of US$149 million. These comprise tax claims relating to corporate income tax credits and offsets in Brazil and underpayment of royalties and income tax
payment shortfalls and certain other matters have been claimed against South32 Businesses in Colombia.
In each of these cases, South32 intends to continue to vigorously contest the matter. While South32 believes that some of these claims may take many years to be resolved, if
there is an adverse finding against South32 in these matters it may result in material liabilities for, or reduce future profitability of, South32.
Where South32 considers a claim may result in probable loss, it is reflected in a provision in South32’s balance sheet. Where South32 considers that a claim has a lower
probability of resulting in loss, South32’s exposure may be reflected in a contingent liability disclosure in South32’s financial statements (set out in Section 10.8(d) and note
18 Contingent liabilities to the historical combined financial information set out in Annexure 1).

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Given the uncertainty in respect of claims of this nature from tax authorities, and South32’s view that it is confident that an outcome favourable to South32 will be achieved
in most of these cases, the provisions and contingent liabilities in South32’s financial statements do not cover all of, and may not adequately capture, South32’s total potential
liability in respect of these and similar claims. As a result, the ultimate exposure South32 faces for claims may be greater than that provided for in South32’s financial
statements or included in its contingent liabilities.

(e) South32’s operations are dependent on licences and permits, the obtaining, renewal or maintenance of which may be uncertain or challenging
South32 Businesses generally require governmental licences, permits, authorisations, concessions and other approvals in connection with their activities. Obtaining and
complying with the necessary governmental permits and regulations can be particularly complex, costly and time-consuming and are therefore not assured.

The duration, cost and success of permit applications are contingent on many factors, including those outside the control of the South32 Group. Failure to obtain or renew a
necessary permit could mean that South32 Businesses would be unable to proceed with the development or continued operation of a mine or project, which in turn may have
an adverse effect on the relevant South32 Businesses, results of operations, financial condition or prospects. The permits that South32 Businesses need may not be issued,
maintained or renewed either in a timely fashion or at all, which may constrain the ability of South32 Businesses to conduct their mining operations, which in turn may
impact South32’s financial results.
From time to time, parties may seek to challenge the validity of permits and licences or attempt to interfere with rights granted to South32 Businesses. This may result in the
loss of rights held by, or the incurrence of additional cost to, South32 Businesses.

(f) South32 may be exposed to litigation and claims that could result in a significant cost to South32 or affect its operations
South32 is exposed to risks of litigation that may have an adverse effect on South32. There are some actions and claims that have been raised by third parties that are yet to
be resolved. South32 may lose such claims and may incur costs in addressing such claims.
CMSA and certain Colombian Government agencies are defendants to proceedings in the Colombian Constitutional Court. The proceedings involve a review of multiple
claims that are similar in nature brought by representatives of local communities. The claims, which CMSA and the defendant Government Agencies strongly contest, allege
that Amendment No. 4 to Contract 051-96M (which set forth revised conditions for the continued operation of CMSA under its key mining licence in 2012) is not valid on
the basis that local communities should have been consulted about the amendment, that CMSA’s environmental licence expired when the concessions under which CMSA
operated until 30 September 2012 expired (notwithstanding that the environmental licence was issued for the term of the project and the project continues under Contract
051-96M) and that CMSA’s operations are impacting the health of the neighbouring communities. First and second instance judgments in respect of one of these actions and
a first instance judgment in respect of the other action were issued against the plaintiffs in 2013 and early 2014. The Constitutional Court is now conducting a review of these
judgments, with submission of evidence and arguments in the proceedings continuing. A decision in respect of this matter is expected in 2015. An adverse outcome could
result in a court order for the temporary suspension or revocation of CMSA’s mining or environmental licences, require CMSA to modify its operations to address the alleged
health and environmental impacts or require CMSA to undertake a retrospective community consultation process in relation to Amendment No. 4 under the supervision of
the Ministry of the Interior.
A separate action has been brought in respect of the privatisation process conducted for Cerro Matoso. The relief sought is the annulment of the sale of a shareholding of
approximately 47.6 per cent in CMSA to BHP Billiton Group (BVI) Limited in 1997 (which, if successful, would require the Colombian Government to reimburse the
South32 subsidiary for the amount it paid for the shareholding and to reimburse CMSA for investments made in the Cerro Matoso project after 1997 that have not been
amortised as at the date of the judgment). At first instance, a decision was issued by a Civil Judge in favour of CMSA and the other defendants. However, an appeal of
the decision at first instance decided that the Colombian administrative courts (which are responsible for considering actions involving government-related law suits) have
the appropriate jurisdiction in respect of the matter. An action was therefore commenced in the Council of State (Colombia’s highest administrative court dealing with
government-related law suits). The basis for the claim has not been stated, the proceedings have not progressed since this action was commenced in October 2008 and notice
of the action has not been formally served upon BHP Billiton Group (BVI) Limited, the relevant South32 subsidiary. Illawarra Metallurgical Coal has a long term contract
with BlueScope Steel for the supply of metallurgical coal to BlueScope Steel’s steelworks located at Port Kembla. BlueScope Steel has made certain claims in relation to the
calculation of historical prices under the contract, and in relation to the quality of coal supplied under the contract. Illawarra Metallurgical Coal does not accept the claims
made by BlueScope Steel, and a dispute resolution process to resolve these claims has recently commenced.
In each of the cases above, South32 intends to continue to strongly contest the matter. However, if there is an adverse finding it may result in liability for, and/or reduce the
future profitability of, South32.
There are also other litigation and arbitration proceedings to which South32 Businesses are exposed, but which are not regarded as material by South32. However, it is
possible that South32’s assessment of its exposure in respect of these proceedings may change in the future, including as a result of developments in the proceedings or
additional information becoming available.

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2.2 OPERATIONAL RISKS


(a) Cost pressures and reduced productivity could negatively impact South32’s operating margins and expansion plans
Cost pressures may occur across industries to which South32 Businesses are exposed and affect a variety of inputs into South32’s operations, which would negatively impact
South32’s operating margins.
Labour is a significant input into South32’s operations, and labour costs may vary depending on demand and requirements at South32’s operations. Labour costs and
productivity may also be affected by the actions of labour unions, which may adversely affect workplace flexibility, productivity and costs.
Increased costs of energy and other raw materials used by South32 may also adversely affect South32’s earnings.

(b) South32 Businesses are dependent on access to infrastructure that is economical, and without such access these operations may be disrupted or further
development may be prevented
South32 Businesses’ products are transported to customers by a range of methods, including road, rail and sea. A number of factors could disrupt the availability of these
transport services, including weather-related problems, rail or port capacity and allocation constraints, key equipment and infrastructure failures and industrial action, which
may limit South32 Businesses’ ability to deliver product to customers and may have an impact on productivity and profitability. Furthermore, the cost of accessing required
infrastructure may increase (possibly substantially), and South32 Businesses may not be able to pass on the full extent of that cost increase to its customers.
In South Africa, South32 Businesses’ access to the rail infrastructure of Transnet (the South African Government-owned rail freight and port provider) is key to its
operations. South Africa Manganese and South Africa Energy Coal currently have allocations to access Transnet’s rail infrastructure; however, securing future access when
current allocations expire (and the terms on which that access may be secured) is uncertain due to capacity constraints and the level of demand from third parties. Transnet
has recently allocated volumes for the next five years for manganese export capacity (final terms are still under discussion). The ability of South32 Businesses to develop and
expand operations, particularly in South Africa, is impacted by South32’s access to infrastructure to support increased output.

(c) South32 Businesses are dependent on access to water and power that is economical, and without such access these operations may be disrupted or further
development may be prevented
Water and power are critical to a number of South32’s operations. However, continued access, or access on current terms, to water and electricity to support existing
activities cannot be guaranteed in the future, due to factors such as climate (including drought), changes in allocations, changes in activities or conditions at South32’s
operations, elections by contract counterparties to cease current arrangements, the term of contractual arrangements ending or changes in government policy.
The cost and reliability of power supply are risks to the financial position and operations of South32’s aluminium smelters, particularly South Africa Aluminium and Mozal
Aluminium. Due to ongoing power shortages and reliability issues in the South African power grid, South Africa Aluminium and Mozal Aluminium are, at times, subject to
load shedding. In recent years the reliability of electricity supply in South Africa has further deteriorated and the frequency of load shedding has increased. Eskom, the South
African Government-owned power utility, announced a national program of load shedding in January 2015 and has stated that the South African power system is likely to be
constrained for the foreseeable future. A temporary increase in the electricity levy has been proposed until the electricity shortage is over. Interruptions to the supply of
power to South32’s aluminium smelters can result in production losses and damage to plant. More generally, the lack of reliability, and potential increases in the cost, of
power supply could significantly affect operations at South Africa Aluminium and Mozal Aluminium for an extended period of time. In addition, Eskom referred the power
pricing regime for South Africa Aluminium’s power supply contracts to the National Energy Regulator of South Africa for review in October 2012.
Current levels of hydro-generation power plants’ water reservoirs in Brazil have increased the risk of electricity rationing occurring. Should electricity rationing occur, the
performance and profitability and ongoing operations of the Alumar Smelter could be adversely impacted.
Furthermore, expansion and development of activities of South32 Businesses may be subject to the ability to access sufficient water and power on economic terms. A failure
to procure supplies of water and power, or access to water and power infrastructure on economically acceptable terms, could limit the ability of South32 Businesses to
expand activities or develop new operations.

(d) Unexpected natural or operational catastrophes may adversely impact South32’s operations
Members of the South32 Group have extractive, processing and logistical operations in a number of geographic locations. South32’s operations may be subject to accidents
or incidents that impact the ability of South32 Businesses to continue operating or cause harm to its assets or equipment.
In particular, South32 Businesses access key port facilities located at Richards Bay in South Africa and Bunbury, Milner Bay, Bell Bay, Townsville and Port Kembla in
Australia, together with key rail facilities located at Richards Bay and Bunbury. This port and rail infrastructure may be subject to port, shipping or rail incidents that could
temporarily or permanently restrict access.

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South32 Businesses include six underground mines, including four underground coal mines. Mines, particularly underground mines, and associated mining and processing
equipment and processing plants can be exposed to incidents such as fire and explosion, loss of power supply and critical mechanical equipment failures. South32 may also
be exposed to other incidents that affect operations, including pit wall failures at open-cut mines.

South32’s operations may also be subject to unexpected natural catastrophes such as earthquakes, floods, hurricanes and fires. The mine and processing facility at
Cannington is located between the confluence of two ephemeral watercourses at the headwaters of the Lake Eyre Basin catchment, and, if flooding were to occur, this could
have adverse implications on the operations.
Existing business continuity plans may not provide full protection for all of the costs that arise from such events. The impact of these events could lead to disruptions in
production, increased costs and/or loss of facilities, which would adversely affect South32’s financial results and prospects. Third party claims arising from these events may
also exceed the limit of liability in the insurance policies South32 has in place in respect of such events.

(e) South32 is reliant on non-controlled operators and contractors at some operations


South32 does not control (or solely control) all aspects of each of the South32 Businesses. The Brazil Aluminium assets (MRN and Alumar) are managed by joint venture
partners, limiting the level of decision-making power South32 has in respect of these assets. Other South32 Businesses or assets may, in the future, also be managed by joint
venture partners. These non-controlled assets may not comply with South32’s management and operating standards, controls and procedures, including its health, safety,
environment and community (HSEC) standards. Failure to adopt equivalent standards, controls and procedures at these assets could adversely impact South32’s reputation
and financial results.
South32 is also reliant on the use of contractors and other third parties for exploration, mining and other activities. While the situation is normal practice for the mining and
exploration industry and South32 seeks to actively manage these contractors to achieve desired performance levels, to some extent South32 relies on these contractors
performing their roles properly and their failure to do so may impact the performance of South32.

(f) Outputs produced from processing are dependent on quality and consistent supply of inputs
Some of South32’s activities rely on the processing of raw materials, including some raw materials supplied from South32’s own mines, the quality of which is not always
consistent. In these activities, the quality and quantity of output, cost of processing and/or time taken to process raw materials may be affected by the quality of raw material
supplied and the consistency of supply of inputs, which may in turn impact the financial results achieved by South32.
The grade of minerals produced from mining operations often diminishes over the life of a mine, resulting in lower quality products being produced from mining operations
in their later stages.

(g) South32’s operations may be affected by unfavourable employee and union relations, which could disrupt its activities
Some of the employees at South32 Businesses are represented by labour unions under various collective labour agreements.
Parts of South32’s workforce in certain locations, including Australia, Colombia and South Africa, are members of unions. The South32 Businesses may not be able to
satisfactorily renegotiate collective labour agreements when they expire and may face higher wages and changes in benefits.
In addition, existing labour agreements may not prevent strikes or work stoppages in the future, and any strike or other work stoppage could have an adverse effect on the
operations and financial results of the South32 Businesses.

(h) Due to the nature of its business and operations, South32 is exposed to the risks of fraud and corruption
As a diversified metals and mining company operating in a number of jurisdictions, South32 is exposed to the risks of fraud and corruption, both within its organisation and
in dealing with parties external to the organisation. Some of South32’s activities are located in countries where corruption is generally understood to exist.
South32 will seek to fully comply with applicable legislative and regulatory requirements in respect of fraud and corruption in the jurisdictions in which it operates. South32
will also seek to implement internal control systems to limit the occurrence of fraud or corruption. However, there can be no assurance that such procedures and established
internal controls will adequately protect South32 against fraudulent or corrupt activity and such activity could have an adverse effect on South32’s business, reputation,
results of operations, financial condition or prospects. In addition, South32 may suffer from delays or disruption resulting from a refusal to make so-called facilitation
payments in some of the countries in which South32 operates.
BHP Billiton’s policies on financial sanctions and competition law are currently applicable to South32. Prior to implementation of the Demerger, South32 will establish
policies or controls to address trade and financial sanctions and competition law. However, such policies and controls may not prevent instances of dishonesty by employees,
contractors or third parties nor guarantee compliance with legal or regulatory requirements. This may lead to regulatory fines, disgorgement of profits, litigation, loss of
operating licences or reputational damage.

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(i) South32 will be smaller in scale than BHP Billiton following the Demerger
Following the Demerger, South32 will be an independent entity and much smaller in scale than BHP Billiton. This may result in South32 facing additional costs or risks
compared to the position historically, including reduced access to, and less favourable terms in, any future financing facilities and different terms on which it procures goods
or services.

(j) The Demerger may fail to realise anticipated benefits for South32
South32 may fail to realise any or all of the anticipated benefits of the Demerger, either in a timely manner or at all. Some of the potential benefits of the Demerger may not
be achieved as a result of circumstances outside the control of South32.

(k) Third party consents required as part of the Demerger may not be obtained
The Demerger (or steps associated with the Demerger) may result in breaches or defaults under certain contracts to which South32 is a party, unless relevant counterparty
consents are obtained. In addition, there are certain BHP Billiton Group-wide contracts relevant to South32’s operations, which BHP Billiton is seeking to assign to South32
or renegotiate so that there are separate contracts for South32 and BHP Billiton.
Although all material contractual consents required to effect the Demerger have been obtained, there are a number of less material consents that have not been obtained as at
the date of this document. BHP Billiton has started seeking these consents, but not all counterparties may provide consent (and some counterparties may seek to alter the
terms of the relevant contract, as a condition of providing consent). A failure to obtain these consents may result in breaches or defaults under contracts, or an inability to
align contractual arrangements to South32 and BHP Billiton as independent entities.

(l) There is potential for delays, unexpected costs or other issues in establishing South32 as a standalone legal entity
As a subsidiary of BHP Billiton prior to the Demerger, South32 has been supported by BHP Billiton’s corporate services infrastructure, including the provision of services
relating to group accounting, treasury, tax, superannuation, legal, insurance administration, information management and information technology, certain group purchasing
and general human resources.
As part of the implementation of the Demerger, South32 will replace these support services with its own internal capability, third party contracts and transitional service
agreements as appropriate. During a transitional period of up to 12 months, South32 will be reliant on BHP Billiton for the provision of certain information management-
related services.
It may take some time to procure the necessary resources and services and ensure that all processes are operating fully and efficiently. There is a risk that the establishment of
these capabilities may take longer than expected or may involve greater costs than anticipated.

(m) Breaches of South32’s information technology security processes may adversely impact South32’s business activities
South32 will acquire or develop and maintain, or source from other parties, global information technology systems, consisting of infrastructure, applications and
communications networks to support South32’s business activities. These systems could be subject to security breaches (for example cyber-crime) resulting in theft,
disclosure or corruption of information, including information relating to acquisitions and divestments, strategic decision-making, non-public investment market
communications or commercially sensitive information relating to major contracts. Security breaches could also result in misappropriation of funds or disruptions to
South32’s operations.

(n) Failure to retain and attract key employees to South32 may impact on operations and financial results
The loss of key personnel or the failure to attract, train and recruit sufficiently qualified staff could affect South32’s operations, financial condition and growth.
Furthermore, BHP Billiton employees may not accept employment offered by South32 as part of the Demerger, resulting in South32 not retaining the benefit of employees
with specialist knowledge of their functions.

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2.3 BUSINESS RISKS


(a) Failure to maintain, realise or enhance existing reserves, discover new reserves or develop new operations could negatively affect South32’s future results
and financial condition
The volume and quality of product the South32 Businesses recover may be less than South32 or Competent Persons have estimated. Mineral Resource and Ore Reserve
estimates are expressions of judgement based on knowledge, experience and industry practice. There are risks associated with such estimates, including that the ore mined
may be of a different grade, tonnage or strip ratio from those in the estimates. Mineral Resource and Ore Reserve estimates also depend to some extent on interpretations and
geological assumptions, commodity prices, cost assumptions and statistical inferences, which may ultimately prove to have been unreliable.
Consequently, Ore Reserve and Mineral Resource estimates are often regularly revised based on actual production experience or new information and could therefore be
subject to change.
Moreover, a decline in the price of commodities that South32 Businesses sell, reduction in recovery rates or ore grades or changes in applicable laws and regulations,
including environment, permitting, title or tax regulations, that are adverse to South32, may mean the volumes of product that South32 can feasibly extract may be lower than
the Ore Reserve estimates, which may result in a reduction of such estimates.
Furthermore, production from South32’s operations results in existing reserves being depleted over time. A failure to discover new reserves, enhance existing reserves or
develop new operations in sufficient quantities to maintain or grow the current level of its reserves could negatively affect South32’s results or prospects.
The discovery of new mineral deposits does not guarantee that the mining of that deposit would be commercially viable; the size of the deposit, location, access to
infrastructure, development and operating costs, commodity prices and recovery rates are all key factors in determining commercial viability. Furthermore, local
communities in close proximity to new proposed operations may create additional costs or delays in respect of, or ultimately prevent the commencement or continuation of,
those operations.

(b) Increased costs or schedule delays may adversely affect South32’s development projects
While significant time and resources have been devoted to project planning, approval and review processes, many of the development projects of South32 Businesses are
highly complex and rely on factors that are outside its control, which may result in South32 underestimating the cost or time required to complete a project. In addition,
South32 Businesses may fail to manage projects as effectively as anticipated or unforeseen challenges may emerge. Furthermore, the cost of inputs into the development of
projects may rise over time or be volatile, making development less economically rewarding.
Increased capital costs or schedule delays at development projects of South32 Businesses will adversely affect such future development projects and impact anticipated
financial returns.

2.4 FINANCIAL RISKS


(a) If South32’s liquidity and cash flow deteriorate, it could adversely affect South32’s access to capital and ability to operate existing assets or fund major
capital programs
South32 will target an investment grade credit rating throughout the cycle. However, fluctuations in commodity prices and the ongoing global economic volatility may
adversely impact South32’s future cash flows. If South32’s key financial ratios are not maintained and an investment grade credit rating is not obtained or maintained, its
liquidity and cash reserves, interest rate costs on borrowed debt and future access to financial capital markets could be adversely affected.

(b) Closure and rehabilitation costs require significant judgements and estimates and are therefore subject to change
Closure planning is a key consideration in the planning and development of South32’s projects and operations. All operations are required to develop and maintain closure
plans, which describe the proposed methods to rehabilitate disturbed land and remediation requirements for contaminated land, and end uses for land and infrastructure.
South32 is required in its financial statements to include provisions for the expected closure and rehabilitation costs of its operations. Those provisions are measured at the
expected future cash flows, discounted to their present value and determined according to the probability of alternative estimates of cash flows occurring for each operation.
Significant judgements and estimates are involved in forming expectations as to future activities and the amount and timing of future cash flows, having regard to factors
such as requirements of the relevant legal and regulatory framework, the magnitude of possible contamination, and the timing, extent and costs of required closure and
rehabilitation activity.
South32 and its management consider its closure and rehabilitation provisions to be appropriate based on currently available information (including estimated closure dates).
However, given inherent uncertainties, the future actual expenditure may differ from the amounts currently provided.

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(c) South32 may not recover its investments in mining assets, which may require financial write-downs
One or more of the South32 Businesses may be affected by changed market or industry structures, commodity prices, technical operating difficulties, inability to recover its
Ore Reserves or increased operating cost levels. These may cause South32 to fail to recover all or a portion of its investment in mining assets and may require financial
write-downs, adversely impacting financial results.

(d) The commercial counterparties the South32 Businesses transact with may not meet their obligations, which may negatively impact South32’s financial
condition and results
The South32 Group contracts with a number of commercial, governmental and financial counterparties, including customers, suppliers and financial institutions.
Counterparties may fail to perform against existing contracts and obligations. Non-supply or changes to the terms of supply of key inputs, such as tyres, mining and mobile
equipment and other key consumables, may unfavourably impact costs and production at South32’s operations. Furthermore, South32 will need to replace certain services
provided under transitional service arrangements entered into with BHP Billiton with agreements with third parties, creating the risk of counterparties failing to meet
performance standards that were achieved prior to the Demerger or under transitional services provided by BHP Billiton. These factors could negatively affect South32’s
Businesses and there can be no assurance that South32 would be successful in attempting to enforce any of its contractual rights through legal action.

(e) South32 may be subject to restrictions on its ability to pay dividends or extract capital out of certain jurisdictions
South32’s ability to pay dividends will depend on, among other things, government regulation, the level of distributions, if any, received from South32’s operating
subsidiaries and associates, and their level of cash balances and access to those cash balances.
Certain of South32’s operating subsidiaries may, from time to time, be subject to restrictions on their ability to make distributions to South32 or return cash to it by other
means, and there can be no assurance that such restrictions will not have an adverse effect on the market price of South32 Shares.
It is a condition of SARB’s approval of South32’s inward listing on the JSE, that South32 will have the right to pay dividends from its South African subsidiaries and to remit
any such dividends abroad without having to obtain the prior written consent of the FinSurv Department, provided that the payout ratio of dividends from the distributable
reserves of the South African subsidiaries shall be no greater than the average payout ratio of dividends from the distributable reserves of non-South African subsidiaries.

(f) South32’s insurance coverage may be inadequate to respond to significant events, causing disruptions to its activities or financial loss
South32’s insurance coverage with respect to its operations may be inadequate and the occurrence of an event could adversely affect the South32 Businesses, including its
operations, financial condition and results or prospects. In addition, South32 may incur liabilities to third parties (in excess of any insurance cover or statutory reserves)
arising from negative environmental impacts or other damage or injury.

2.5 SUSTAINABILITY RISKS


(a) Impacts, incidents or accidents and related regulations may adversely affect South32’s people, operations, reputation or licence to operate or the
environment
There are a number of risks that could adversely affect South32’s people, operations, reputation or licence to operate or the environment.

(1) South32 may be adversely affected by health and safety risks in respect of its activities
Health-related risks at South32’s operations include potential occupational exposure to noise, manganese, carcinogenic substances, such as silica, diesel particulate
matter, nickel, sulphuric acid mist, flourides and coal tar pitch. Longer-term health impacts may arise due to the exposure of the South32 workforce to these and other
hazardous substances. The South32 Businesses have, and have had for a number of years, in place comprehensive health and safety policies and performance
requirements that are intended to help mitigate the impact of such exposures.
Risks to fitness-for-work, such as fatigue and impairment from illegal or legal drugs, including alcohol, may also affect South32’s operations. South32 Businesses
operated by members of the South32 Group are required to develop and implement a fatigue management plan and a risk-based drug and alcohol program. Infectious
diseases such as HIV and malaria may also have an adverse impact upon South32’s workers or on its communities, primarily in Africa. Because South32 operates
internationally, it may be affected by potential pandemic outbreaks.
South32 has controls in place to understand, manage and, where possible, eliminate the safety risks in its business. Potential safety events that may have an adverse
impact on South32’s operations include fire, explosion or rock fall incidents both in above ground and underground mining operations, personnel conveyance
equipment failures or human errors in underground operations, aircraft incidents, incidents involving light vehicles and mining mobile equipment, ground control
failures or gas leaks, equipment isolation during repair and maintenance, working from heights or lifting operations.

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Fatal injuries have historically occurred at South32 Businesses’ sites and there is a risk of future fatalities. These incidents may result in claims or criminal
prosecutions against South32 Businesses.
South32’s approach to health and safety is reflected in its controls and procedures, which are intended to eliminate risk wherever possible. However, there can be no
assurance that these controls and procedures will always fully protect against these potential future risks.

(2) South32 may be adversely affected by environmental risks in respect of its activities
South32’s operations, by their nature, have the potential to impact biodiversity, land, water resources and related ecosystems, including from the discharge of
contaminants. Changes in scientific understanding of these impacts, regulatory requirements or stakeholder expectations may prevent or delay project approvals and
result in increased costs for mitigation, offsets or compensatory actions.
All of South32’s operating and closed facilities are required to have comprehensive closure plans in place, which include the proposed methods to rehabilitate
disturbed land and remediation requirements for contaminated land, and end uses for land and infrastructure. Changes in circumstances and regulatory or community
expectations may result in closure plans requiring change. Furthermore, challenges may be faced in implementing existing closure plans or amendments may be
required to closure plans to address new circumstances that come to light or to ensure appropriate rehabilitation and remediation of sites. These factors may impact
financial closure provisions and costs at the affected operations.
South32’s operations (particularly South Africa Energy Coal) include a number of closed mines and facilities. Implementation of the closure plans for the South
Witbank colliery (which is a former operation of South Africa Energy Coal that closed in 1975) remains subject to ongoing review having regard to structural risks
relating to the surface area of the former mine (where some sink-holes have formed) and the long-term risk of underground fires spreading from nearby mines owned
by third parties.
Incidents that may occur or may have historically occurred at South32’s operations may have an adverse environmental impact, including from uncontrolled tailings
containment breaches, escape of polluting substances and subsidence from mining activities, (particularly at South32’s underground mines, including Illawarra
Metallurgical Coal, which has the potential to cause damage to adjacent infrastructure). Certain of South32 Businesses’ sites are subject to remediation plans that seek
to address known contamination as a result of past activities. Remediation plans for these sites are subject to ongoing review and change, including as a result of
engagement with regulatory authorities, landowners and local communities. Changes to the remediation plan may have an impact on the closure provision.
Furthermore, as yet undiscovered contamination may be identified or future contamination may occur that requires remediation action that could result in additional
costs for South32.
Diesel in ground water has been identified at GEMCO’s Milner Bay port facility. The contamination is currently contained and discussions with local landowners and
regulators as to the final rehabilitation plan for the contaminated area are ongoing. If this results in any changes to the closure plan or assumptions underlying the
current provision, it is possible that the provision for this event will need to change.

(3) Water and waste water management risks have the potential to adversely impact the sustainability of South32’s operations
South32 is strongly focused on water and waste water management, as the sustainability of South32’s operations relies on South32’s ability to obtain an appropriate
quality and quantity of water, use it responsibly and manage it appropriately, including taking account of natural supply variations.
South32’s operations are exposed to a range of water risks, including water scarcity, water excess, water quality, water discharge or discharge into ground water issues.
Some assets are more prone than others to these water management related risks.
Worsley Alumina has implemented a number of projects to address water management risks, including to control, monitor and assign accountability for all aspects of
residue management and to improve liquor return to the refinery, reduce additional water use and minimise dust emissions. Contaminated water from Worsley
Alumina’s operations is stored in site containment facilities from which contaminated water could be released if higher than average rainfall or extreme weather
occurs. South32 is considering various mitigation strategies to address this risk.
(4) South32 Businesses may be disrupted without the support of the local communities in which the South32 Businesses are located
Notwithstanding South32’s contributions to the communities in which the South32 Businesses are located, local communities may become dissatisfied with the impact
of South32’s operations or oppose new development projects, including through litigation, which may affect the costs, production, and, in extreme cases, viability of
such operations. Community-related risks may include community protests or civil unrest, delays to proposed developments, mistreatment of local communities by
South32 employees or contractors and inadvertent breaches of human rights or other international laws or conventions.

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In CY2013, Cerro Matoso faced a community incident relating to a protest by local communities. Following on from this incident, agreement has been reached with
the communities regarding the provision of community support and the establishment of a regular forum to engage with the communities located close to Cerro
Matoso to better facilitate the resolution of concerns and complaints at an early stage. There remains a risk of community incidents occurring at Cerro Matoso or any
other South32 Businesses.
There are also security risks that may impact on South32’s operations and people. This security risk includes the prospect of unpredictable actions, such as violence,
that may be taken by illegal miners discovered at certain mines, including South Africa Manganese.

(b) Climate change and greenhouse gas effects may adversely impact South32’s operations and markets
The South32 Businesses have significant sales of carbon-based energy products. Carbon-based energy is also a significant input in a number of South32’s mining and
processing operations.
A number of governments and governmental bodies have introduced, or are contemplating introducing, fiscal and/or regulatory change to address the impacts of climate
change. Many countries have established, or are contemplating establishing, individual greenhouse gas targets and/or other national mitigation actions.
The South African National Treasury published its Revised Carbon Tax Policy Paper in May 2013 that sets out the South African Government’s intention to introduce a
carbon tax. The South African Government has proposed a phased implementation of the carbon tax, phase one of which is scheduled to commence on 1 January 2016.
Uncertainty exists around the final form of the tax and whether the tax will actually be implemented.
There is a potential gap between the current valuation of fossil fuel reserves on the balance sheets of companies and in global equities markets and the reduced value that
could result if a significant proportion of reserves were rendered incapable of extraction in an economically viable fashion due to regulatory or market responses to climate
change.
Furthermore, there is the potential impact on South32’s financial results of increased input costs caused by measures taken by governments in respect of the use of carbon-
based energy. Certain South32 smelting and refining assets are particularly prone to this risk, given they are significant users of electricity produced from coal and natural
gas.
The physical impacts of climate change on South32’s operations are uncertain and will be specific to the geographic circumstances. These may include changes in rainfall
patterns, water shortages, rising sea levels, increased storm intensities or higher temperatures. These effects may adversely impact the productivity and financial performance
of South32’s operations.
Recently, there has also been activism by certain parties against companies with significant exposures to fossil fuels. Given South32’s commodity profile, South32 may be
the target of such activism, which could lead to investors being encouraged not to invest in, or to divest their interests in, South32 or other actions being taken that would
impact South32’s operations, results or share price.

2.6 GENERAL RISKS RELATING TO THE SOUTH32 SHARES


(a) The price of South32 Shares may be subject to broader share market conditions
South32 Shareholders should be aware that there are risks associated with an investment in financial products quoted on a stock exchange. Share price movements could
affect the value of any investment in South32.
The value of South32 Shares can be expected to fluctuate depending on various factors, including fluctuations in the domestic and international markets for listed stocks,
general worldwide economic conditions, changes in government policies, investor perceptions, movements in interest rates, prices of South32’s products, variations in
operating costs and costs of replacing capital assets which South32 may require in the future.

In addition, following the Demerger, some BHP Billiton Shareholders may not wish to hold South32 Shares (or may not be permitted to do so under the terms of their
investment mandates, including because South32 will not qualify for inclusion in FTSE indices), and may sell the South32 Shares they received under the Demerger. Sales of
this sort could create short term selling pressure on the South32 Shares. The sale of South32 Shares by the Sale Agent may also impact the trading price of South32 Shares.
However, it is expected that 100 per cent of the South32 Shares will qualify for inclusion in the S&P/ASX indices, although not all of the South32 Shares will initially be
distributed to investors whose portfolios are benchmarked against those indices (as a proportion of South32 Shares will be distributed to shareholders in BHP Billiton Plc).
This means that the allocation of shares to shareholders who benchmark their portfolios against the S&P/ASX indices may be less than would be required for them to initially
achieve an equivalent portfolio exposure to that benchmark, creating a relative underexposure to South32 in their portfolios. It is reasonable to expect that this underexposure
may give rise to demand for South32 Shares, as would demand from shareholders who wish to increase their exposure to South32 for any other reason.

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(b) Future share issues by South32 may dilute existing South32 Shareholders or cause volatility in the price of South32 Shares
The issue of additional shares by South32 or the possibility of such issue may cause the market price of South32 Shares to fluctuate, decline or be lower than might otherwise
be the case or result in the dilution of the interests of South32 Shareholders. In addition, future share issues conducted by South32 may adversely affect South32’s ability to
raise capital in the future or dilute interests of South32 Shareholders.

(c) Exchange rate fluctuations may adversely affect the foreign currency value of South32 Shares and any dividend
The South32 Shares will be quoted in Australian dollars on the ASX, South African rand on the JSE and pounds sterling on the LSE. Dividends in respect of South32 Shares,
if any, will be declared in US dollars. Fluctuations in the exchange rate between the US dollar and each of these currencies will affect, among other matters, the local
currency value of the South32 Shares and of any dividends.

(d) The rights afforded to South32 Shareholders are governed by Australian law. Not all rights available to shareholders under the laws of South Africa, the
United Kingdom and the United States will be available to South32 Shareholders
The rights afforded to South32 Shareholders will be governed by Australian law, and these rights differ in certain respects from the rights of shareholders in typical South
African, English and United States companies (or companies incorporated in any other jurisdictions).
Under English law, generally speaking, directors may allot shares if authorised to do so by ordinary resolution of the company’s members or by the articles of association. In
addition, shareholders have pre-emption rights unless those rights are explicitly excluded or disapplied. This means that an issue for cash of equity securities or rights to
subscribe for, or convert into, equity securities must be offered in the first instance to the existing equity shareholders in proportion to the respective nominal values of their
holdings, unless a special resolution has been passed at a general meeting of shareholders to the contrary. However, South32 will not be subject to the requirements of the
Companies Act 2006 to obtain authority from shareholders to allot new shares and to issue equity securities otherwise than on a pre-emptive basis to existing holders of
ordinary shares. Any future increase in South32’s share capital or granting of rights to subscribe for South32 Shares may be dilutive to South32 Shareholders as they do not
have pre-emption rights under the South32 Constitution or Australian law (although shareholders are afforded certain protections against dilution pursuant to the ASX
Listing Rules and Corporations Act).

(e) Foreign investors may find it difficult to enforce foreign judgements obtained against South32 and the South32 Directors
The majority of the South32 Directors and officers reside outside South Africa and the United Kingdom. In addition, South32’s assets are located in various jurisdictions. As
a result, it may not be possible for non-Australian investors to effect service of process on or to enforce judgements obtained against South32, or its directors or officers, in
respect of actions commenced in the investor’s home jurisdiction.

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3 IMPORTANT INFORMATION
3.1 GENERAL
The contents of this document are not to be construed as legal, business or tax advice. Each prospective investor should consult their own lawyer, financial adviser or tax
adviser for legal, financial or tax advice.
The contents of the BHP Billiton website (www.bhpbilliton.com) do not form part of this document and South32 Shareholders and prospective investors should not rely on
them. Furthermore, neither BHP Billiton nor South32 does not accept any responsibility for the accuracy or completeness of any information reported by the press or other
media, or the fairness or appropriateness of any forecasts, views or opinions expressed by the press or other media regarding the Demerger, BHP Billiton or South32. Neither
BHP Billiton nor South32 make any representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication.
Without prejudice to any obligation of South32 to publish supplementary disclosure pursuant to Section 87G of FSMA and PR 3.4.1 of the UKLA Prospectus Rules, neither
the publication of this document nor any distribution of South32 Shares shall, under any circumstances, create any implication that there has been no change in the business
or affairs of the South32 Group taken as a whole since the date of this document or that the information contained herein is correct as of any time subsequent to its date.

3.2 PREPARATION OF, AND RESPONSIBILITY FOR, THIS DOCUMENT


• South32 and the South32 Directors, whose names appear in Section 8.1(a), accept responsibility for the information contained in this document (the liability of
South32 and the South32 Directors being subject to certain indemnities BHP Billiton Limited has agreed to provide to South32, as described in Section 14.4).
BHP Billiton Limited accepts responsibility for the information contained in this document save for the information contained in Sections 5.2, 5.3, 5.5, 7.7, 8.1 to 8.6
and 8.8 (as well as information included in other sections of this Document which substantially replicates, derives from or summarises the information referred to in
these sections).
To the knowledge of South32, BHP Billiton Limited and the South32 Directors (who have taken all reasonable care to ensure that such is the case), the information
contained in this document is in accordance with the facts and contains no omission likely to affect the import of such information.
• KPMG Financial Advisory Services (Australia) Pty Ltd (KPMG Transaction Services) has given, and has not withdrawn, its written consent to be named in this
document as Independent Accountant to the South32 Group in relation to the pro forma historical financial information in the form and context in which it is named
and the inclusion in this document of its report in Section 12 (Independent Accountant’s Assurance Report) in the form and context in which it is included. KPMG
Transaction Services has authorised the contents of such report for the purpose of PR 5.5.3R(2)(f) of the UKLA Prospectus Rules.
• KPMG and KPMG Inc have given and have not withdrawn their written consent to be named in this document as Auditor to the South32 Group in relation to the
historical combined financial information in Annexures 1 and 2 in the form and context in which they are named and the inclusion in this document of the Independent
Audit Report and Independent Review report in Annexures 1 and 2 in the form and context in which they are included. KPMG and KPMG Inc have authorised the
contents of such reports for the purpose of PR 5.5.3R(2)(f) of the UKLA Prospectus Rules.
• Each of the Independent Competent Persons has given and has not withdrawn their written consent to the inclusion in this document of their report(s), set out in
Annexure 6 (Independent Competent Persons’ Reports) and to the references to their name included herein in the form and context in which it appears and has
authorised the contents of those parts of this document, which comprise their report(s). Each of the Independent Competent Persons accepts responsibility for their
report(s) as part of this document together with information in this document, which has been extracted directly from their report(s). To the best of the knowledge of
each of the Independent Competent Persons (each of whom has taken all reasonable care to ensure that such is the case), the information contained in their report(s) is
in accordance with the facts and contains no omission likely to affect the import of such information.
• Greenwoods & Herbert Smith Freehills Pty Ltd has reviewed and agrees with and accepts responsibility for Section 13.2 relating to the description given of the tax
implications of holding South32 Shares for South32 Shareholders who, among other things, are residents of Australia for Australian tax purposes. Greenwoods &
Herbert Smith Freehills Pty Ltd has given, and has not withdrawn, its written consent to the inclusion in this document of Section 13.2 and to the references to its
name included herein in the form and context in which it appears and has authorised the contents of Section 13.2. To the best of the knowledge of Greenwoods &
Herbert Smith Freehills Pty Ltd (which has taken all reasonable care to ensure that such is the case), the information contained in Section 13.2 is in accordance with
the facts and contains no omissions likely to affect the import of such information.

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• Slaughter and May has reviewed and agrees with and accepts responsibility for Section 13.3 relating to the description given of the United Kingdom tax implications
of holding South32 Shares for South32 Shareholders who, among other things, are residents of the United Kingdom for United Kingdom tax purposes. Slaughter and
May has given, and has not withdrawn, its written consent to the inclusion in this document of Section 13.3 and to the references to its name included herein in the
form and context in which it appears and has authorised the contents of Section 13.3. To the best of the knowledge of Slaughter and May (which has taken all
reasonable care to ensure that such is the case), the information contained in Section 13.3 is in accordance with the facts and contains no omissions likely to affect the
import of such information.
• Cleary Gottlieb Steen & Hamilton LLP has reviewed and agrees with and accepts responsibility for the description given of the United States federal income tax laws
included in Section 13.4 (except for Section 13.4(b)(4)) of this document relating to the tax implications of holding South32 Shares for certain South32 Shareholders
who, among other things, are subject to United States federal income tax on a net income basis with respect to income from the South32 Shares or ADSs. Cleary
Gottlieb Steen & Hamilton LLP has given, and has not withdrawn, its written consent to the inclusion in this document of Section 13.4 (except for Section 13.4(b)(4))
and to the references to its name included herein in the form and context in which it appears and has authorised the contents of Section 13.4 (except for Section 13.4(b)
(4)). To the best of the knowledge of Cleary Gottlieb Steen & Hamilton LLP (which has taken all reasonable care to ensure that such is the case), the information
contained in Section 13.4 (except for Section 13.4(b)(4)) is in accordance with the facts and contains no omissions likely to affect the import of such information.
• Ernst & Young Advisory Services (Pty) Ltd has reviewed and agrees with and accepts responsibility for Section 13.5 relating to the description given of the South
African taxation implications of holding South32 Shares for South32 Shareholders whose registered address on the South32 Share Register is in South Africa or who
are otherwise deemed resident in South Africa for South African tax purposes. Ernst & Young Advisory Services (Pty) Ltd has given, and has not withdrawn, its
written consent to the inclusion in this document of Section 13.5 and to the references to its name included herein in the form and context in which it appears and has
authorised the contents of Section 13.5. To the best of the knowledge of Ernst & Young Advisory Services (Pty) Ltd (which has taken all reasonable care to ensure that
such is the case), the information contained in Section 13.5 is in accordance with the facts and contains no omissions likely to affect the import of such information.
• Bell Gully has reviewed and agrees with and accepts responsibility for Section 13.6 relating to the description given of the New Zealand tax implications of holding
South32 Shares for South32 Shareholders whose registered address on the BHP Billiton Limited Share Register is in New Zealand or who are otherwise deemed
resident in New Zealand for New Zealand tax purposes. Bell Gully has given, and has not withdrawn, its written consent to the inclusion in this document of
Section 13.6 and to the references to its name included herein in the form and context in which it appears and has authorised the contents of Section 13.6. To the best
of the knowledge of Bell Gully (which has taken all reasonable care to ensure that such is the case), the information contained in Section 13.6 is in accordance with the
facts and contains no omissions likely to affect the import of such information.

3.3 INVESTMENT DECISIONS


This document does not take into account the investment objectives, financial situation or particular needs of any BHP Billiton Shareholder, South32 Shareholder or any
other person. This document should not be relied upon as the sole basis for any investment decision in relation to South32 Shares or any other securities, and you should
consult your financial, legal, tax or other professional adviser before making any such investment decision.

3.4 FORWARD LOOKING STATEMENTS


Certain statements in this document relate to the future, including forward looking statements relating to South32’s financial position and strategy. Forward looking
statements can be identified by the use of terminology such as ‘intend’, ‘aim’, ‘project’, ‘anticipate’, ‘estimate’, ‘plan’, ‘believe’, ‘expect’, ‘may’, ‘should’, ‘will’, ‘continue’
or other similar words. These statements discuss future expectations concerning the results of operations or financial condition, or provide other forward looking statements.
These forward looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, including
the risk factors set out in Section 2, many of which are beyond BHP Billiton’s or South32’s control, and which may cause the actual results to differ materially from those
expressed in the statements contained in this document. South32 Shareholders are cautioned not to put undue reliance on forward looking statements.
Other than as required by law, none of BHP Billiton, South32, their officers or their advisers or any other person gives any representation, assurance or guarantee that the
occurrence of the events expressed or implied in any forward looking statements in this document will actually occur, in part or in whole.
Additionally, statements of the intentions of the South32 Board and/or Directors reflect the present intentions of the South32 Directors, respectively, as at the date of this
document and may be subject to change as the composition of the South32 Board alters, or as circumstances require. Except as required by law, BHP Billiton and South32
disclaim any obligation or undertaking to update or revise any forward looking statement in this document.

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The forward looking statements speak only as at the date of this document. To the extent required by applicable law or regulation (including as may be required by the
Corporations Act, ASX Listing Rules, UKLA Prospectus Rules, UKLA Listing Rules, UKLA Disclosure and Transparency Rules, JSE Listings Requirements and Financial
Markets Act), South32 will update or revise the information in this document. Otherwise, BHP Billiton and South32 expressly disclaim any obligation or undertaking to
release publicly any updates or revisions to any forward looking statements contained in this document to reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is based.
The statements above relating to forward looking statements are not intended to qualify the working capital statement set out in Section 15.20 of this document.

3.5 PRESENTATION OF FINANCIAL INFORMATION


This document includes both historical combined financial information and pro forma historical financial information for South32. The basis of preparation of the historical
combined financial information is set out in Annexure 1 and the basis of preparation of the pro forma historical financial information is set out in Section 10.2.
The financial information contained in this document has been prepared and presented in accordance with the recognition and measurement requirements of:
• Australian Accounting Standards, being Australian equivalents to International Financial Reporting Standards and interpretations as issued by the Australian
Accounting Standards Board;
• International Financial Reporting Standards and interpretations as adopted by the European Union;
• International Financial Reporting Standards and interpretations as issued by the International Accounting Standards Board.
The above accounting standards and interpretations are collectively referred to as IFRS in this document.
Information on departures from the disclosure requirements of IFRS is set out in the basis of preparation to the historical combined financial information set out in Annexure
1.
South32 uses the measures in Table 3.1 below which are included in the historical combined financial information in Annexures 1 and 2, in accordance with IFRS 8
‘Operating Segments’.
South32 plans to use the measures of Underlying Earnings, Underlying EBIT and Underlying EBITDA to assess the performance of the South32 Group and the South32
Businesses. Underlying EBITDA and Underlying EBIT are calculated based on the accounting policy that South32 proposes to use when discussing its operating results in
future periods. The accounting policy proposed by South32 for calculating these measures differs from that currently used by BHP Billiton, the key differences being that
South32 will adjust for certain items each period, irrespective of materiality, and South32 management will retain the discretion to adjust for other significant non-recurring
items that are not considered to reflect the underlying performance of the South32 Businesses. Refer to note 2 Segment reporting of Annexure 1 for further details of
South32’s policy for calculating Underlying Earnings, Underlying EBIT and Underlying EBITDA. South32 also uses a number of non-IFRS financial measures in addition to
those reported in accordance with IFRS. The South32 Directors believe that these non-IFRS measures, listed below, are important when assessing the underlying financial
and operating performance of South32 and the South32 Businesses.

Table 3.1: IFRS 8 measures

IFRS 8 measure Definition


Underlying Earnings Underlying Earnings is Profit after taxation and earnings adjustments. Earnings adjustments represent items that do not reflect the
underlying operations of South32.
Underlying EBIT Earnings before net finance costs, taxation and any earnings adjustments before net finance costs and income tax expense.
Underlying EBITDA Underlying EBIT before depreciation and amortisation.
Non-IFRS measures used in this document are defined below:

Table 3.2: Non-IFRS measures


Non-IFRS measure Definition
Adjusted effective tax rate Comprises total taxation expense excluding the impact of exchange rate movements included in taxation expense, remeasurements of
deferred tax assets associated with Minerals Resource Rent Tax (MRRT), non-recognition of tax benefits where the tax benefit resides
with BHP Billiton and the tax impacts of amounts excluded from Underlying EBIT divided by Profit before taxation and amounts
excluded from Underlying EBIT.
Underlying EBIT margin Comprises Underlying EBIT excluding third party product profit from operations, divided by revenue excluding third party product
revenue.

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Non-IFRS measure Definition


Underlying EBITDA margin Comprises Underlying EBITDA excluding third party product EBITDA, divided by revenue excluding third party product revenue.
Margin on third party products Comprises Underlying EBIT on third party products, divided by third party product revenue.
Net debt Comprises interest bearing liabilities less cash and cash equivalents.
Net operating assets Represents operating assets net of operating liabilities, including the carrying value of equity accounted investments and predominantly
excludes cash balances, interest bearing liabilities and deferred tax balances.

3.6 INDEPENDENT COMPETENT PERSONS’ REPORTS


The Independent Competent Persons’ Reports, which are set out in Annexure 6, have been prepared by individuals who South32 believes to be sufficiently independent
to provide those reports. As disclosed in the Independent Competent Persons’ Reports, certain of those individuals have some small interests in BHP Billiton Shares. South32
does not consider those interests to be material so as to compromise the independence of the Independent Competent Persons’ Reports.
The scope of work undertaken by each Independent Competent Person is set out in the relevant Independent Competent Person’s Report.
In relation to each Independent Competent Persons Report, no material changes have occurred since the date of the Independent Competent Persons’ Report the omission of
which would make the Independent Competent Person’s Report misleading.

3.7 CREDIT RATING


References to investment grade are made with reference to ratings criteria published by one or a combination of credit rating agencies which are registered under Regulation
(EC) No. 1060/2009.

3.8 NOTICE TO BHP BILLITON SHAREHOLDERS OUTSIDE AUSTRALIA, THE UNITED KINGDOM AND SOUTH AFRICA
This document does not in any way constitute an offer of securities in any place in which, or to any person to whom, it would be unlawful to make such an offer.
The Demerger will not be registered with the United States’ Securities and Exchange Commission under the United States’ Securities Act of 1933, as amended. BHP Billiton
expects South32 to qualify for the exemption from registration under Rule 12g3-2(b) of the Exchange Act, and accordingly the South32 Shares will not be registered under
the Exchange Act and South32 will not be subject to the reporting requirements of the Exchange Act.
BHP Billiton Shareholders who are Ineligible Overseas Shareholders will not receive South32 Shares under the Demerger. South32 Shares that would otherwise be
transferred to these shareholders under the Demerger will be transferred to the Sale Agent to be sold, with the net proceeds of such sale to be paid to Ineligible Overseas
Shareholders. Refer to the Shareholder Circular for further information.

3.9 WHERE TO FIND HELP


If you have any additional questions in relation to this document, please call the Shareholder Information Line on:

BHP Billiton Limited Shareholders


• 1300 582 743 (within Australia) on weekdays between 8:30am and 7:30pm (AEST/ADST);
• +61 3 9415 4808 (international) on weekdays between 8:30am and 7:30pm (AEST/ADST).

BHP Billiton Plc Shareholders


UK register
• 0844 472 7001 (within the United Kingdom) on weekdays between 8:30am and 5:30pm (GMT/BST);
• +44 844 472 7001 (international) on weekdays between 8:30am and 5:30pm (GMT/BST).
South African register
• 086 1100 634 (within South Africa) on weekdays between 8:00am and 4:30pm (SAST);
• +27 11 870 8216 (international) on weekdays between 8:00am and 4:30pm (SAST).

BHP Billiton ADS Holders


• 877 248 4237 (within the United States) on weekdays between 8:30am and 6:00pm (EST/EDT);
• +1 781 575 4555 (international) on weekdays between 8:30am and 6:00pm (EST/EDT).
For legal reasons, the Shareholder Information Line will not provide advice on the merits of the Demerger or give any legal, financial or taxation advice, for which you are
recommended to consult your own legal, financial or taxation adviser.

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4 KEY TRADING DATES


The key dates relating to South32 securities trading on the ASX, JSE and LSE are set out below:

Table 4.1: Key trading dates

Event Indicative date ASX JSE LSE Other


South32 Shares commence 18 May 2015 12:00pm
trading on the ASX on a deferred AEST
settlement basis
South32 Shares commence 18 May 2015 9:00am
trading on the JSE on a normal SAST
settlement basis
South32 Shares commence 18 May 2015 8:00am
trading on the LSE on a when- BST
issued basis
South32 ADSs that will be 18 May 2015 During the day
distributed to BHP Billiton EDT
ADS Holders commence
trading over-the-counter on a
when-issued basis
Transfer of South32 Shares 24 May 2015 5:00pm
to Eligible BHP Billiton AEST
Limited Shareholders
(BHP Billiton Limited
Distribution Date)
Transfer of South32 Shares 25 May 2015 Commencing 8:30am
to Eligible BHP Billiton Plc 7:00am BST
Shareholders (BHP Billiton Plc SAST(a)
Distribution Date)
Commencement of normal trading 26 May 2015 8:00am
of South32 Shares on the LSE BST
Distribution of South32 ADSs 29 May 2015 During the day
to BHP Billiton ADS Holders EDT
South32 ADSs commence 1 June 2015 During the day
regular way trading in the over- EDT
the-counter market
Commencement of normal trading 2 June 2015 10:00am
of South32 Shares on the ASX AEST

(a) For the dematerialised holders this will be dependent on the Strate settlements process, commencing 7:00am SAST. Prior to start of trade on JSE (9:00am) for
certificated holders.

All dates and times are indicative only and, among other things, are subject to change. Any changes to the timetable will be announced through the ASX, JSE and LSE and
will be notified on BHP Billiton’s website at www.bhpbilliton.com/demerger.

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5 SOUTH32 OVERVIEW
5.1 INTRODUCTION
On Demerger, South32 will be a globally diversified metals and mining company with a portfolio of high quality assets producing alumina, aluminium, coal, manganese,
nickel, silver, lead and zinc.
South32 will comprise the following South32 Businesses, which are described in more detail in Section 7.1. All financial information shown in Section 5 reflects historical
combined financial information for South32 extracted from Annexures 1 and 2.

Diagram 5.1: South32’s locations

Table 5.1: Worsley Alumina


Worsley Alumina (86 per cent interest) is an integrated bauxite mining and alumina refining operation located in Western Australia, Australia. Bauxite ore is mined near
Boddington and conveyed to the Worsley Alumina refinery, located near Bunbury. Alumina is railed from Worsley Alumina to Bunbury for export to Worsley Alumina’s
export customers including South32’s Hillside and Mozal Aluminium smelters in southern Africa. Worsley Alumina is one of the largest and lowest-cost alumina refineries
in the world, being in the first cost quartile in its industry based on CY2013 production.1 Worsley Alumina has a resource life of 63 years and a reserve life of 17 years.

South32’s share of: H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Alumina production (kt) 1,953 1,970 3,916 3,675 2,917
Underlying EBITDA (US$M) 143 108 162 60 (67)

1 Source: C1 cash cost curve, Wood Mackenzie Alumina refinery costs league, 2014 Q4.

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Table 5.2: South Africa Aluminium


South Africa Aluminium (100 per cent interest) comprises the Hillside smelter near Richards Bay, South Africa. The business previously included the Bayside smelter, which
was closed in FY2014, and the Bayside casthouse. An agreement has been reached for the sale of the assets comprising the Bayside casthouse (the sale is subject to certain
regulatory and other conditions, which are expected to be fulfilled during the first half of CY2015). Hillside is the largest aluminium smelter in the Southern Hemisphere and
it imports alumina from the Worsley Alumina refinery. Historically, approximately 80 per cent of Hillside’s aluminium production has been exported through Richards Bay
Port with the balance of Hillside’s aluminium production trucked to the Bayside casthouse or to domestic customers. The Hillside smelter extends across the first and second
cost quartiles based on CY2013 production.2

South32’s share of: H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Aluminium production (kt) 356 415 804 761 719
Underlying EBITDA (US$M) 201 84 190 73 (10)

Table 5.3: Mozal Aluminium


Mozal Aluminium (47.1 per cent interest) is an aluminium smelter located near Maputo, Mozambique. Alumina is currently supplied to Mozal Aluminium from the Worsley
Alumina refinery, which is majority owned by South32. Most of Mozal Aluminium’s aluminium is currently exported to Europe through Matola, the port of Maputo.
In CY2013, Mozal Aluminium had higher operating costs than the Hillside smelter (which extends across the first and second cost quartiles based on CY2013 production).3

South32’s share of: H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Aluminium production (kt) 135 134 266 264 264
Underlying EBITDA (US$M) 88 17 52 31 51

Table 5.4: Brazil Aluminium


Brazil Aluminium comprises South32’s interests in the MRN Mine (14.8 per cent interest) as well as its interest in the Alumar alumina refinery (36 per cent interest) and
Alumar aluminium smelter (40 per cent interest) (together with certain interests in ancillary facilities and lands). The MRN Mine is located in the Trombetas region in the
state of Pará, Brazil and Alumar is located at Săo Luís in the state of Maranhăo, Brazil. The majority of the bauxite produced from the MRN Mine is sold to its shareholders
and related parties. South32’s share of bauxite produced from the MRN Mine is supplied to the Alumar refinery and most of the alumina produced from the Alumar refinery
is exported via the nearby Săo Marcos Bay facilities, with a small portion transferred to the Alumar smelter. All of Alumar’s aluminium production is trucked to domestic
customers. Brazil Aluminium’s Alumar refinery is in the second cost quartile and the Alumar smelter is in the third cost quartile based on CY2013 production.4 MRN Mine
has a resource life of 29 years and a reserve life of six years.

South32’s share of: H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Alumina production (kt) 680 633 1,262 1,205 1,235
Aluminium production (kt) 26 63 104 154 170
Underlying EBITDA (US$M) 140 35 127 44 3

2 Source: C1 cash cost curve, Wood Mackenzie Aluminium smelter costs league, 2014 Q4.
3 Based on the C1 cash cost curve, Wood Mackenzie Aluminium smelter costs league, 2014 Q4, Mozal Aluminium was in the first cost quartile based on CY2013
production. Refer to Section 7.1 for historical operating cost data for Mozal Aluminium and South Africa Aluminium.
4 Source: C1 cash cost curve, Wood Mackenzie Aluminium smelter costs league, 2014 Q4.

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Table 5.5: South Africa Energy Coal


South Africa Energy Coal (90 per cent interest) operates four energy coal mines in the Witbank region in the Mpumalanga province of South Africa. Approximately 55 per
cent of coal produced is sold domestically and the remainder is exported through the Richards Bay Coal Terminal (RBCT), in which South32 has a 21 per cent interest.
South Africa Energy Coal is the third largest export energy coal producer in South Africa and fifth largest supplier of energy coal domestically. South Africa Energy Coal is
in the second cost quartile based on CY2013 production.5 Khutala, Klipspruit, Wolvekrans and Middelburg mines have resource lives of 103 (inclusive of undeveloped
domains), 12, 42 and 34 years and reserve lives of six, six, 21 and 23 years respectively.

100 per cent terms(a): H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Energy coal production (kt) 16,525 14,973 30,384 31,627 33,279
Underlying EBITDA (US$M) 83 54 197 115 416

(a) Production and earnings information for South Africa Energy Coal is shown on a 100 per cent basis. South32’s ownership interest in South Africa Energy Coal is
90 per cent, with the remaining 10 per cent held by minority shareholders, the purchase of which was funded with vendor-financed loans (refer to Section 7.1(e)).
However, from an accounting perspective, South32’s interest in Underlying EBITDA will remain at 100 per cent until such loans are repaid to South32, following
which South32’s interest in Underlying EBITDA will be 90 per cent.

Table 5.6: Illawarra Metallurgical Coal


Illawarra Metallurgical Coal (100 per cent interest) operates three underground metallurgical coal mines near Wollongong in New South Wales, Australia. Metallurgical coal
is trucked to Port Kembla or to BlueScope Steel Limited’s (BlueScope Steel) Port Kembla steelworks. Illawarra Metallurgical Coal is in the second quartile of the industry
margin curve based on CY2013 production6 and its mines have resource lives (inclusive of undeveloped domains) of 41, 15 and 43 years and reserve lives of 25, two and
nine years for each of Appin, West Cliff and Dendrobium / Cordeaux respectively.

South32’s share of: H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Metallurgical coal production (kt) 3,858 2,614 5,974 6,664 6,621
Energy coal production (kt) 880 741 1,539 1,278 1,305
Underlying EBITDA (US$M) 120 70 135 302 818

Table 5.7: Australia Manganese


Australia Manganese (60 per cent interest) comprises the GEMCO open-cut manganese mine and the TEMCO manganese alloy plant. GEMCO, which is located in the
Northern Territory, Australia, is one of the world’s lowest-cost manganese ore producers. It exports to customers approximately 90 per cent of its ore product through port
facilities at Milner Bay and the balance of the ore is shipped to the TEMCO manganese alloy plant in Bell Bay, Tasmania, Australia. The majority of TEMCO’s alloy
production is exported to customers in Asia and North America, with the balance of TEMCO’s production being sold to steel customers in Australia and New Zealand.
GEMCO is in the first cost quartile based on CY2013 production.7 GEMCO has a resource life of 15 years and a reserve life of 11 years.

100 per cent terms(a): H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Manganese ore production (kt) 2,499 2,438 4,776 5,027 4,306
Manganese alloy production (kt) 139 123 269 234 198
Underlying EBITDA (US$M) 215 252 505 499 335

(a) Production and earnings information for Australia Manganese is shown on a 100 per cent basis. South32’s ownership interest in Australia Manganese is 60 per cent.
South32’s interest in Underlying EBITDA is 60 per cent.

5 Source: C1 cash cost curve, Wood Mackenzie Seaborne export thermal coal, energy adjusted, November 2014.
6 Source: Margin curve (to account for coal quality differentials), Wood Mackenzie Seaborne export metallurgical, November 2014.
7 Source: Site operating costs with value in use adjustment, CRU cost curve, August 2014.

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Table 5.8: South Africa Manganese


South Africa Manganese comprises the Hotazel Mines, being the Mamatwan open-cut mine and the Wessels underground mine (44.4 per cent effective interest), and the
Metalloys plant (60 per cent interest). The Hotazel Mines are located near the town of Kuruman, South Africa. Approximately 75 per cent of the ore processed at the mine
results in export saleable product. The remainder of the ore is converted to alloy at the Metalloys plant, which is located near Johannesburg, South Africa. The Metalloys
plant is one of the largest manganese alloy producers in the world and exports most of its product to customers in the United States, Europe and Asia. Hotazel Mines is in the
third cost quartile based on CY2013 production.8 Hotazel Mines have resource lives of 24 and 92 years and reserve lives of 18 and 46 years for Mamatwan and Wessels
respectively.

100 per cent terms(a): H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Manganese ore production (kt) 2,056 1,808 3,526 3,490 3,625
Manganese alloy production (kt) 233 180 377 374 404
Underlying EBITDA (US$M) 63 21 120 111 (18)

(a) Production and earnings information for South Africa Manganese is shown on a 100 per cent basis. South32’s ownership interest in South Africa Manganese is 60 per
cent, except Hotazel Mines which is 44.4 per cent. However, South32’s interest in Underlying EBITDA is 60 per cent, except Hotazel Mines which is 54.6 per cent
(please refer to Section 7.1(h)(2) for further details of the Broad-Based Black Economic Empowerment (BBBEE) arrangements).

Table 5.9: Cerro Matoso


Cerro Matoso (99.94 per cent interest) is an open-cut lateritic nickel mine and ferronickel smelter, located near Montelibano, in the Córdoba Department in northern
Colombia, which produces high-purity, low-carbon ferronickel granules and is currently one of the largest nickel producers in the world. The product is transported
approximately 260 km by road to Cartagena. Cerro Matoso is in the second cost quartile based on CY2013 production,9 and has a resource life of 37 years and a reserve life
of 15 years.

South32’s share of: H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Nickel production (kt) 21 24 44 51 49
Underlying EBITDA (US$M) 113 43 87 234 417

Table 5.10: Cannington


Cannington (100 per cent interest) is a silver, lead and zinc underground mine and concentrator operation located in northwest Queensland, Australia, approximately 200 km
southeast of Mount Isa, and is the world’s largest silver producing mine. Concentrate produced at Cannington is trucked to the Yurbi rail loading facility and then railed
approximately 800 km to the Port of Townsville for export to customers mainly located in northeast Asia, Europe and Canada. Cannington is in the first cost quartile of silver
production based on CY2013 production on a co-product cost basis,10 and has a resource life of 22 years and a reserve life of nine years.

South32’s share of: H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012


Silver production (koz) 12,235 12,667 25,161 31,062 34,208
Lead production (kt) 99 94 187 213 239
Zinc production (kt) 37 32 58 56 55
Underlying EBITDA (US$M) 183 272 460 651 893

Details regarding resource and reserve life calculations

Resource and reserve life information in Section 5 is based on the information in Section 7.2. Resource life is estimated from the FY2014 Classified Mineral or Coal
Resources (as applicable), and as provided in the ASX release titled, 2014 BHP Billiton Annual Report – 25 September 2014 available on the BHP Billiton website at
www.bhpbilliton.com or the ASX website at www.asx.com.au, converted to a run-of-mine basis using historical Mineral or Coal Resources (as applicable) to Ore Reserves
conversion factors, divided by the FY2014 run-of-mine production rate on a 100 per cent basis. Weighted average individual mines Mineral or Coal Resources
(as applicable) to Ore Reserves conversion factors and run-of-mine tonnages comprise:
• Worsley Alumina: 0.96, 17.4 Mt;
• Brazil Aluminium: 0.99, 17.75 Mt;
• South Africa Energy Coal – all resources: 0.83, 38.05 Mt;

8 Source: Site operating costs with value in use adjustment, CRU cost curve, August 2014.
9 Source: C1 cash cost curve, Wood Mackenzie Nickel industry costs league, 2014 Q4.
10 Source: Estimated 2013 silver cost information, AME Group.

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• Illawarra Metallurgical Coal: Appin 0.38, 6.56 Mt, West Cliff 0.38, 2.81 Mt, Dendrobium/Cordeaux 0.34, 3.85 Mt;
• Australia Manganese: 0.69, 8.8 Mt;
• South Africa Manganese: Mamatwan 0.72, 3.2 Mt, Wessels 0.60, 0.9 Mt;
• Cerro Matoso: 0.33, 3.2 Mt;
• Cannington: 1.00, 3.4 Mt.

Resource life calculations are indicative only and do not necessarily reflect future uncertainties such as economic conditions, technical or permitting issues.

Reserve life is calculated based on the current stated Ore Reserves divided by the current approved nominated production rate as at the end of FY2014. For Cannington,
estimated Ore Reserves are divided by a declining production rate.

Historical Mineral or Coal Resources to Ore Reserves conversion factors may not be indicative of future conversion factors.

5.2 SOUTH32 ORGANISATIONAL STRUCTURE


Following the Demerger, South32 intends to adopt a regional organisational structure, as shown in Diagram 5.2. The key aspects of this organisational structure are as
follows:
• South32’s head office will be in Perth, Australia;
• South32 will operate two regional business hubs for its operations, one in Perth, Australia, which will be co-located with South32’s head office, and one in
Johannesburg, South Africa;
• South32’s centralised marketing function will be based in Singapore;
• South32 intends to have a global shared services centre in Johannesburg, South Africa.

Diagram 5.2: Organisational structure

South32 Businesses are generally located in Australia and Africa, which facilitates South32’s implementation of a regional organisational model. The regional organisational
model involves combining the business units and assets into regional business units, which will reduce a layer of management. More authority will be devolved to regional
business units, reducing the size of South32’s corporate centre and facilitating greater alignment with regional stakeholders.

A regional organisational structure is considered appropriate for South32 because the majority of its assets are geographically concentrated and because of the generally
smaller scale of its operations compared to that of BHP Billiton, which allows for increased support at the regional organisational level, as opposed to the asset organisational
level.

This model will involve aggregating functional support, such as finance, supply planning and human resources support, at the regional organisational level. This differs from
the operating model employed under BHP Billiton’s ownership, where such functional support has been provided at the asset organisational level.

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5.3 STRATEGY
South32 intends to maximise value for shareholders by being a safe, lean, responsible and predictable operator of its portfolio of high quality diversified metals and mining
assets, and by managing its capital in a disciplined way. South32 intends to meet these objectives by pursuing the following strategic priorities:
• Establish a distinctive, powerful culture and identity. South32 is proud of its BHP Billiton heritage but will create a new and independent culture and identity
suited to its scale and requirements. South32 intends to adopt a flexible, agile and entrepreneurial approach designed to maximise the value of its assets. This approach
will seek to foster a culture of innovation and continuous improvement.
• Enhance environmental, health, safety and social programs. South32 recognises that all stakeholders benefit from a sustainable business and considers it a strategic
priority to enhance its environmental, health, safety and social programs for the benefit of employees, host communities and governments.
• Embed an efficient operating model that is aggregated at the regional level. South32’s operating model will be designed to ensure that each asset is operated in the
most efficient manner. An important aspect of the South32 operating model is the regional organisational structure, which is described in Section 5.2 and is expected
to help drive more efficient and productive operations.
• Reduce costs and improve productivity. South32’s assets have benefited from the structured and focused approach to productivity pursued by BHP Billiton.
South32’s lean operating model and performance-oriented culture offer the potential for additional gains, which may further enhance the already competitive
position of South32’s assets.
• Create strong alignment with investors. South32 will adopt a simple approach to manage its capital, with a view to generating strong cash returns. South32 will, in a
manner consistent with its dividend policy described in Section 5.5, seek to return a proportion of Underlying Earnings as dividends. Other alternatives including
special dividends, share buy-backs and high return investment opportunities will compete for excess capital.
• Develop and pursue investment opportunities. South32 will rigorously evaluate and only pursue high quality investment options that meet strict financial criteria,
including the low-cost, value accretive brownfield investment options that are embedded in its existing assets.
• Continually seek to optimise the portfolio. South32 intends to continuously assess the make-up of its diverse portfolio of assets to ensure its capital is being
deployed in the most efficient manner.

5.4 KEY STRENGTHS


(a) A significant diversified metals and mining company
The South32 Businesses have a significant presence in each of its major commodities. This includes being the world’s largest producer of manganese ore, a top producer of
silver and manganese alloy, and one of the world’s largest ferronickel producers.

With operations spread across five countries and producing 10 commodities, South32’s diversification reduces its sensitivity to the price volatility of individual commodities
and its reliance on individual operations, customers and regions.

Chart 5.1: Diversification of South32 revenue and Underlying EBITDA(a)

(a) Based on FY2014. Underlying EBITDA represents South32’s accounting policy. Manganese revenue and Underlying EBITDA presented on a proportional
consolidation (60 per cent) basis.
(b) Includes inter-segment revenue.

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(b) A high quality, well-managed portfolio with competitively positioned assets


South32 will have a number of large assets, the majority of which are competitively positioned in the first or second quartile of their respective industry cost curves. For
example, Worsley Alumina is one of the largest and lowest-cost global alumina refineries.

South32’s operated assets benefit from having historically been managed and maintained in accordance with BHP Billiton’s standards and practices.

Recently completed projects include investments in Australia Manganese, completed in 2013, Worsley Alumina, completed in 2013, and South Africa Energy Coal,
completed in 2010.

Chart 5.2: South32 total capital expenditure(a) over past 10 years

US$ billion

(a) The capital expenditure for FY2012 to FY2014 is based on historical combined financial information for South32 included in Annexure 1. For the period FY2005 to
FY2011 the capital expenditure is based on information previously published by BHP Billiton as unaudited supplementary financial information released as part of
BHP Billiton’s results announcements.

(c) Meaningful reserve and resource lives


Many of South32’s assets have significant reserve lives, which positions South32 to sustain production from existing assets without the immediate need for material
incremental capital expenditure to extend mine lives. These reserve lives are complemented by material incremental resources with the potential to further extend mine lives.

Table 5.11: South32 reserve lives and resource lives

Reserve life Resource life


(years)(a) (years)(b)
Worsley Alumina 17 63
Brazil Aluminium 6 29
South Africa Energy Coal(c) 6, 6, 21, 23 103, 12, 42, 34
Illawarra Metallurgical Coal(d) 25, 2, 9 41, 15, 43
Australia Manganese 11 15
South Africa Manganese(e) 18, 46 24, 92
Cerro Matoso 15 37
Cannington 9 22

(a) Estimated Ore Reserves (as set out in Section 7.2) divided by the current approved nominated production rate as at the end of FY2014. For Cannington, estimated Ore
Reserves are divided by a declining production rate.
(b) Resource life is estimated from the FY2014 Classified Mineral or Coal Resources (as applicable), and provided in the ASX release titled, 2014 BHP Billiton Annual
Report – 25 September 2014 available on the BHP Billiton website at www.bhpbilliton.com or the ASX website at www.asx.com.au, converted to a run-of-mine basis
using historical Mineral or Coal Resources (as applicable) to Ore Reserves conversion factors, divided by the FY2014 run-of-mine production rate on a 100 per cent
basis. Details regarding resource and reserve life calculation are set out in Section 5.1.
(c) Lives shown for four mines: Khutala, Klipspruit, Wolvekrans and Middelburg respectively. Khutala Coal Resource life is inclusive of undeveloped domains.
(d) Lives shown for three mines: Appin, West Cliff and Dendrobium respectively. Dendrobium Coal Resource life is inclusive of Cordeaux resources. All resource lives
are inclusive of undeveloped domains.
(e) Lives shown for two mines: Mamatwan and Wessels respectively.

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(d) Cash generative business


Over the last three years, the South32 Group has generated cash flow in excess of both investment and sustaining capital expenditure, despite falling commodity prices.

Chart 5.3: South32 historical combined cash generation and capital expenditure

US$ billion

(a) Cash generated from operations including dividends received (including from equity accounted investments).
(b) Net operating cash flows before financing activities and tax and after capital expenditure. On a pro forma basis, net operating cash flows before financing activities
and tax and after capital expenditure would be US$1,035 million in FY2014 (as extracted from Section 10.4 Table 10.2).

(e) A financial position that provides strength and flexibility


South32 expects to have the financial strength and flexibility to implement its strategic objectives of returning cash to shareholders and investing in value accretive
opportunities.

On implementation of the Demerger, South32 is expected to have net debt of US$674 million, including finance leases (based on pro forma net debt as at 31 December
2014). South32 will have a committed US$1.5 billion credit facility from a syndicate of international banks. Refer to Section 10.7 for further details.

South32 will target an investment grade credit rating throughout the cycle, with financial policies in place to safeguard its balance sheet strength and flexibility.

A range of potential projects are available to South32, with selected identified opportunities described in Section 7.1. Subject to further studies and pending South32 Board
and management approvals, potential projects include:
• Klipspruit Extension (South Africa Energy Coal): A life extension project for the Klipspruit opencast, export-oriented mine.
• Khutala Life Extension (South Africa Energy Coal): A proposed life extension project for the existing Khutala Colliery, including the replacement of underground
volumes with production from one or more surface mines.
• Cannington mine life extension (Cannington): In the past, a number of studies have been undertaken into a possible open-cut development at Cannington. South32
management will carefully assess alternatives for effectively exploiting this significant resource.

(f) An experienced and capable South32 Board and management team with a clear strategy to drive operational performance
South32 will benefit from a dedicated board and management team leading the execution and implementation of a tailored operating strategy.

South32’s management has a broad range of mining, commercial, exploration and financial experience. The South32 senior management team set out in Section 8.2 has an
average of 18 years of metals and mining experience, with members of the team having a track record of generating earnings improvements through cost management,
productivity improvements and value accretive investments, both in roles with BHP Billiton and with other organisations. The team will have a near-term focus on cash flow
and will seek to increase shareholder value by enhancing efficiency, with a drive towards lean operating and project development outcomes and by remaining financially
disciplined.

Although operating independently after implementation of the Demerger (subject to limited transitional arrangements), South32 intends to maintain the same commitment to
safe, reliable and sustainable operations as that of BHP Billiton.

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(g) A tailored operating model that allows targeted asset management


The regional organisational model involves combining the business units and assets into regional business units, which will reduce a layer of management. This will allow
focused decision-making that is responsive to, and tailored for, regional needs. Further, operating with more authority devolved to regional business units will allow South32
to reduce the size of its corporate centre and facilitate greater alignment with its regional stakeholders. This will allow South32 to work towards better decision-making and is
expected to facilitate cost reduction over the coming years.

5.5 DIVIDEND POLICY


The South32 dividend policy will be determined by the South32 Board at its discretion, having regard to South32’s first two priorities for cash flow, being a commitment to
maintain safe and reliable operations and an intention to maintain an investment grade credit rating through the cycle.

South32 intends to distribute a minimum of 40 per cent of Underlying Earnings as dividends to its shareholders following each six month reporting period. Consistent with
South32’s priorities for cash flow and commitment to maximise total shareholder returns, other alternatives including special dividends, share buy-backs and high return
investment opportunities will compete for excess capital.

South32 will distribute dividends with the maximum practicable franking credits for the purposes of the Australian dividend imputation system. The extent to which a
dividend can be franked will depend on South32’s franking account balance (which immediately following the Demerger will be nil) and its level of distributable profits.
South32’s franking account balance will depend on the amount of Australian income tax paid by South32 following the Demerger. The timing of South32’s Australian
income tax payments may also impact its capacity to frank any dividend declared for the half year ending 31 December 2015.

No assurance can be given in relation to the level of future dividends or the franking of such dividends (if any), as these will depend on future events and circumstances.

South32 does not intend to pay a dividend for the period ending 30 June 2015, which will conclude only one month after the implementation of the Demerger.

Additional detail on the payment of dividends under South32’s Constitution can be found in Section 15.4(h).

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6 MARKET OVERVIEW
Set out below is a summary of aspects of the industries in which South32 operates. Refer to Section 11.2 for a discussion of recent trends in these markets and the impact of
these trends on South32’s financial results.

6.1 BAUXITE, ALUMINA AND ALUMINIUM INDUSTRY


(a) Background
Overview
Aluminium is produced from bauxite via a two-step process:
• First, bauxite is refined to alumina, the typical standard of which is in excess of 98.5 per cent pure aluminium oxide. A small portion (less than 10 per cent) of alumina
produced is not processed into aluminium, but used in other applications.
• Secondly, to process alumina to aluminium, the alumina produced undergoes electrolytic smelting to form aluminium.

Typically, two to three units of bauxite are required to produce one unit of alumina (actual ratios depend upon the bauxite grade), while approximately two units of alumina
are required to produce one unit of aluminium. Bauxite is one of the most abundant metal ores in the Earth’s crust.

End uses
Aluminium has a wide range of end-use demand segments, which include transportation, construction, packaging, power applications, machinery, equipment and consumer
durables. The diverse nature of end uses for aluminium provides multiple sources for potential ongoing demand growth.

A small portion (less than 10 per cent) of alumina produced is used in applications such as ceramics, abrasives, flame retardants and industrial processing.

Trading and pricing


Traditionally, the third party bauxite segment has been limited, with most bauxite mines vertically integrated with a neighbouring alumina refinery. With the recent growth in
the third party bauxite segment, largely supplying China, the segment is increasingly trading on supply and demand fundamentals and attempts are being made by a number
of publications to establish a bauxite pricing index.

Alumina is not exchange traded; rather, it is sold directly to end-users and traders, with no ability to deliver to a terminal exchange warehouse (for example the LME).
Historically, alumina was sold on a percentage of aluminium price basis, but in recent years the industry has transitioned to more material being sold either on a spot pricing
basis, or contracts linked to an alumina-specific index.

The recognised reference price for aluminium is the LME daily cash settlements for deliverable metal of a minimum purity and particular chemistry. Physical aluminium has
in recent years been sold at a premium to LME prices. Aluminium premiums are driven by the broad supply and demand balance in the market and vary according to the
delivery location.

Historical Platts alumina pricing and LME aluminium pricing is provided in Annexure 5. Historical average prices realised by South32’s alumina and aluminium operations
are provided in Section 7.1.

(b) Supply and demand


Total world production of alumina reached 107 Mt in 2013, with China, Australia and Brazil being the largest producers. China relies heavily on imported bauxite ore to meet
its supply requirements.

Global primary aluminium production totalled 51 Mt in 2013,1 with China being the major producing region. China has expanded smelting capacity in recent years to keep
up with domestic demand growth and is currently substantially self-sufficient in aluminium. China’s primary aluminium is 74 per cent of the country’s consumption, with the
balance supplied from scrap.

China accounted for almost half of global demand in 2013, with its recent growth in demand driven by increasing penetration of aluminium in end-use sectors such as
automotive, transportation and power.

1 Source: Wood Mackenzie.

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Primary aluminium supply and demand

Source: Wood Mackenzie

6.2 ENERGY COAL INDUSTRY


(a) Background
Overview
Coal is a fossil fuel, comprising mainly of carbon, hydrogen and oxygen. The types of coal in order of coalification are peat (lowest rank), lignite, sub-bituminous coal,
bituminous coal and anthracite (highest rank). Energy coal comprises both sub-bituminous and bituminous (steam) coal. It is extracted through surface and underground
mining.

End uses
The major applications for energy coal are power generation, cement manufacture and industrial use. Currently, coal accounts for around 40 per cent of global electricity
production. It is the world’s second largest source of primary energy largely due to the fact it is abundant, widely distributed across the globe and affordable.

Trading and pricing


The energy coal segment is split into paper and physical trading. The former is typically financially settled and the latter is typically bilaterally traded. In the physical
segment, the product is sold directly to end-users and traders.

The international energy coal market is priced in US dollars per metric tonne and there is a wide range of coal with different calorific values in the market. In general, energy
coals with higher calorific values have a higher price.

Index providers for energy coal include Argus, IHS McCloskey and GlobalCOAL. The main benchmark price references for export coal are FOB Newcastle (gcNewc) for
the Pacific and FOB Richards Bay (API 4) and CIF Northwest Europe (API 2) for the Atlantic.

Historical FOB Richards Bay (API 4) energy coal pricing is provided in Annexure 5. Historical average prices realised by South32’s energy coal operations are provided in
Section 7.1.

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(b) Supply and demand


Global energy coal production was 7.2 Bt in 2013,2 with total seaborne exports at 949 Mt. The largest exporters of energy coal are Indonesia and Australia. During the period
of 2007 to 2013, Indonesia and Australia recorded compound annual production growth rates of 14 per cent and nine per cent respectively.

Demand from Asia-Pacific continues to be the key driver of global seaborne energy coal demand, primarily due to electrification and industrial expansion in Asia.

Source: Wood Mackenzie

6.3 METALLURGICAL COAL INDUSTRY


(a) Background
Overview
Metallurgical coal is a fossil fuel, comprising mainly of carbon, hydrogen and oxygen. Metallurgical coal is defined in three broad categories: hard coking coals, weak coking
coals and PCI (pulverised coal injection). Hard coking coal produces high strength coke, while semi-soft or weak coking coal produces a lower strength coke. The utility of
high-strength coke is greater in large, efficient blast furnaces and when high productivity is required.

End uses
Metallurgical coal is primarily used in the steel production process, which involves a variety of metallurgical coals being blended and converted into coke in an oven, which
is typically located on site at steel mills. The coke is then charged in alternating layers with iron ore into the blast furnace where pig iron is created.

2 Source: Wood Mackenzie.

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Trading and pricing


Marketing of metallurgical coal is based on the three different types, each of which has a range of blends that offer different chemical properties. Sales are made to end-user
steel mills, merchant cokeries and increasingly to traders as the market becomes more commoditised. Contracts are priced in US dollars per metric tonne.

Metallurgical coal has traditionally been sold through an annual benchmark pricing system, but the market has more recently evolved to index-based contracts.

Price reporting agencies for metallurgical coal include Platts, Argus, The Steel Index, Steel First and IHS McCloskey.

Historical metallurgical coal pricing (2011 onwards Platts Low-Vol Hard Coking Coal Index and pre-2011 Tex Reports hard coking coal) is provided in Annexure 5.
Historical average prices realised by South32’s metallurgical coal operations are provided in Section 7.1.

(b) Supply and demand


Global metallurgical coal production was 1.1 Bt in 2013, with total seaborne exports at 303 Mt. Metallurgical coal resources are geographically concentrated, with the top
five producing countries accounting for more than 90 per cent of the total seaborne supply. China is the largest producer, but relies on imports to meet demand growth.
Export supply growth has principally been driven by Australia, where a number of new projects have recently been delivered.

Global demand growth continues to be driven by Chinese consumption and Indian urbanisation. China overtook Japan to become the largest importer of seaborne
metallurgical coal in 2013.3 India’s demand is expected to grow as urbanisation and industrialisation gathers pace.

Source: Wood Mackenzie

3 Source: Wood Mackenzie.

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6.4 MANGANESE INDUSTRY


(a) Background
Overview
Metallurgical grade manganese ore is extracted through open-cut and underground mining. Manganese ferroalloys are commercially produced by carbothermic reduction of
ores, either through a blast furnace or electrical smelting process.

End uses
Manganese is currently the fourth largest metal in terms of global consumption, behind iron, aluminium and copper. The major application for manganese is in steel
production. Minor applications for manganese include use in batteries, aluminium/copper alloys, chemicals (potassium permanganate) and fungicides.

Manganese ore smelting and refining are intermediate businesses involving the conversion of ore to alloys in a form suitable for addition to steel. There are various
manganese alloys and grades, such as silicomanganese (SiMn), high-carbon ferromanganese (HCFeMn) and refined alloys such as medium-carbon ferromanganese
(MCFeMn). SiMn is commonly used in the production of long steel products, which are critical components in the construction industry, while HCFeMn and MCFeMn are
generally used in the production of flat steel products.

Trading and pricing


Manganese is sold directly to end-users and traders, and there is no ability to deliver either ore or alloy to a terminal exchange warehouse. Since 2009, quotational periods for
manganese ore have changed from quarterly to monthly and weekly, and the industry is in further transition to spot pricing and index-based contracts.

Ore is priced in US dollars per dry metric tonne unit and there is a wide range of ore grades in the market, with high-grade ores generally achieving higher prices. Alloy
products are more standardised (as they are an intermediate product) although price differences can exist between regions due to localised supply and demand balances,
different lead-times to supply and differences in logistics options.

Index publications for manganese ore and alloys include CRU, Ryan’s Notes, Metal Bulletin and Platts. There is not sufficient liquidity and scale for the development of a
transparent forward market.

Historical manganese ore pricing and historical manganese alloy pricing (CRU Bulk FerroAlloy HCFeMn Western Europe) is provided in Annexure 5. Historical average
prices realised by South32’s manganese operations are provided in Section 7.1.

(b) Supply and demand


Global production of manganese ore reached 50 Mt in 2013,4 with China, South Africa and Australia being the largest producers. China’s supply is typically lower grade and
is insufficient to meet growing domestic demand. Major exporters of manganese ore are South Africa, Australia and Gabon. Global manganese alloy production in 2013
totalled 18.1 Mt, with SiMn being the main alloy produced.5 More than two thirds of manganese alloy production is in China and India, which is consumed domestically in
these countries.

Chinese and Indian demand continues to be the key driver of manganese consumption, primarily due to steel production for continued urbanisation and infrastructure
development. China accounted for half of global ore consumption in 2013,6 and relies increasingly on imports to meet demand growth. China accounted for approximately
64 per cent of global ore imports in 2013.

4 Source: CRU.
5 Source: CRU.
6 Source: CRU.

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Source: CRU

6.5 NICKEL INDUSTRY


(a) Background
Overview
Nickel occurs as a mineral ore usually in oxide (laterite) or sulphide form. Nickel ores are mined by either open-cut or underground methods, and then processed into higher
purity nickel forms such as ferronickel, nickel metal or nickel oxides. There are various processing methods, including concentrating then smelting and refining operations,
direct smelting and leaching operations.

Historically, the majority of primary supply of nickel came from sulphide ores, which commonly provide significant co-product credits. The remaining economic resource
base is now mostly lower grade laterite, which is less expensive to mine but more expensive to process.

End uses
Nickel is rarely used in its pure form; rather it is combined with other metals to form a range of alloys with properties that cannot be achieved by pure metals alone. Nickel’s
main use is in the manufacture of stainless steel alloys, which accounts for about two thirds of total primary nickel usage, while the balance is used in the production of non-
stainless steel materials such as batteries and super-alloys.

Trading and pricing


The reference price is the LME cash settlement price for deliverable nickel with a minimum purity of 99.80 per cent.

Non-LME deliverable material, or products with qualities exceeding the LME specification, are sold at discounts or premiums to the LME benchmark.

Historical nickel pricing is provided in Annexure 5. Historical average prices realised by South32’s nickel operations are provided in Section 7.1.

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(b) Supply and demand


Global production of mined nickel ore reached 2.3 Mt (on a contained nickel basis) in 2013,7 with Indonesia being the largest mined ore production region. However, in
January 2014 the Indonesian Government banned ore exports, resulting in volatile prices in the subsequent months.

Nickel is a late economic development cycle commodity. Chinese demand has increased rapidly in the last decade, and now accounts for approximately half of global
demand. Indian demand for nickel has begun to grow rapidly, albeit from a low base.

The rapid rise in demand within China has been met with a supply response through the emergence of Chinese nickel pig iron (NPI) production, whereby imported nickel
bearing laterite ore (mostly from Indonesia and the Philippines) was smelted domestically in China to produce a crude nickel pig iron alloy which was then used in the
production of stainless steel. The majority of the incremental demand growth since 2009 has therefore been met by NPI production from ore imports, rather than through
increased imports of nickel metal.

The recycling of nickel-bearing materials forms an important part of the supply and demand balance. Scrap usage varies by region, but at a global level approximately 40 per
cent of nickel units come from scrap.

Primary nickel

Source: Wood Mackenzie

7 Source: Wood Mackenzie.

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6.6 SILVER, LEAD AND ZINC INDUSTRY


(a) Background
Overview
Silver, lead and zinc are commonly found together, with silver being associated with the lead minerals. Processing of the ore yields two separate concentrates: lead
(containing silver) and zinc. The lead and zinc concentrates are further processed to produce refined metal.

End uses
Silver is a precious metal with a wide range of uses including industrial applications (electronics, alloys and solders), in jewellery and as a financial asset.

Lead and zinc are the most widely used non-ferrous metals after copper and aluminium. Lead is mostly used in batteries, which account for 80 per cent of total consumption.
Lead-acid batteries are used extensively in the automotive industry for starting-lighting-ignition, but increasingly as a source of motive power in electric vehicles.

Zinc is extensively used for the galvanisation of iron and steel to protect against corrosion, and also in alloys such as bronze and brass.

Trading and pricing


The reference price for silver has been the London Bullion Market Association, which is determined via a daily auction. The most significant paper contract trading market is
the COMEX division of the New York Mercantile Exchange.

The most recognised reference prices for lead and zinc are LME daily cash settlements for deliverable metal of a minimum purity and particular chemistry. Lead and zinc
also have active futures markets that are traded on the LME.

Silver, lead or zinc that is sold in concentrate form to refineries and smelters is typically sold on a ‘payable metal’ basis, based on reference prices described above, less a
treatment or refining charge. These charges notionally represent the cost of producing refined metals; however, they are also influenced by the balance between concentrate
production and available refining and smelting capacity.

Historical silver, lead and zinc pricing is provided in Annexure 5. Historical average prices realised by South32’s silver, lead and zinc operations are provided in Section 7.1.

(b) Supply and demand


Global mine production for silver in 2013 was 820 Moz,8 with another 192 Moz sourced from scrap. The largest silver-producing countries are Mexico, Peru and China,
accounting for about half of the total mine production.

Silver demand has benefited in recent years as investor appetite for the commodity as a store of value has increased. This also means that silver prices are vulnerable to
macroeconomic conditions and market sentiment. Demand for physical silver in 2013 was 1.1 Boz.9 Given silver’s role as a store of value, physical supply and demand
fundamentals historical supply and demand charts have not been included in this document.

Global lead mine production in 2013 was 5.4 Mt in concentrate form.10 Over half of this supply came from China. A large volume of lead is recycled, with 6.0 Mt of
secondary refined metal production recorded in 2013. Lead demand in 2013 was 11.1 Mt,11 of which 45 per cent was from China.

Global zinc mine production in 2013 totalled 13.2 Mt, with approximately 36 per cent coming from China.12 Zinc refined metal production in 2013 totalled 12.9 Mt, of
which approximately 12.05 Mt was from primary sources, and 0.8 Mt from secondary sources. Zinc demand in 2013 was approximately 13.0 Mt, with China accounting for
44 per cent.

8 Source: The Silver Institute.


9 Source: The Silver Institute.
10 Source: International Lead Zinc Study Group.
11 Source: International Lead Zinc Study Group.
12 Source: International Lead Zinc Study Group.

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Lead

Source: International Lead Zinc Study Group

Zinc

Source: International Lead Zinc Study Group

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7 SOUTH32 BUSINESS DESCRIPTION


7.1 SOUTH32 BUSINESSES
(a) Worsley Alumina
(1) Overview
Worsley Alumina is an integrated bauxite mining and alumina refining operation that is 86 per cent owned by South32. It is located in the southwest of Western
Australia, Australia, and includes one of the largest and lowest-cost refineries in the world. Bauxite production in FY2014 was 18 Mt (100 per cent basis). The bauxite
mine has a reserve life of 17 years. Alumina production in FY2014 was 4.6 Mt (100 per cent basis).
The location of Worsley Alumina’s operations is set out below:

Diagram 7.1: Location of Worsley Alumina’s operations

An overview of Worsley Alumina is set out below:

Table 7.1: Worsley Alumina overview

Location The Worsley Alumina bauxite mine is located near the town of Boddington, Western Australia, approximately 123 km southeast of Perth.
The Worsley Alumina refinery is located 55 km northeast of Bunbury, Western Australia.
Ownership Worsley Alumina is an unincorporated joint venture with South32 holding 86 per cent, Japan Alumina Associates (Australia) Pty Ltd holding
10 per cent and Sojitz Alumina Pty Ltd holding four per cent.
Operatorship BHP Billiton Worsley Alumina Pty Ltd operates the Worsley Alumina bauxite mining operation and alumina refinery on behalf of South32.
Workforce Worsley Alumina had on average approximately 1,900 FTE employees and contractors in FY2014.
History Construction of the Worsley Alumina project commenced in 1980, with first alumina being produced in May 1984. Production began at 1.0
Mtpa (100 per cent basis) and has steadily increased through expansion projects, efficiency initiatives and new technology to reach a capacity of
4.6 Mtpa (100 per cent basis) in 2014 (South32’s share 3.9 Mtpa).
BHP Billiton’s ownership in Worsley Alumina (which will be transferred to South32 as part of the internal restructure preceding the Demerger)
stems from two acquisitions. The first of these was Billiton’s initial acquisition of a 30 per cent interest in Worsley Alumina from The Shell
Company of Australia in 1994. BHP Billiton undertook the second acquisition of a further 56 per cent interest from Alcoa Alumínio S.A.
(Alcoa) in 2001.

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Title, leases All necessary mining leases are in place and are valid to various dates from 2024 to 2035. All mining leases are granted on 21 year renewable
or options terms.
Resources As at 30 June 2014, in 100 per cent terms, Worsley Alumina Measured, Indicated and Inferred Mineral Resource totalled 1,140 Mt at 31.4 per
and reserves cent available alumina and 2.2 per cent of reactive silica grades. Worsley Alumina’s Proved and Probable Ore Reserves were 295 Mt (100 per
cent basis) at 31 per cent available alumina and 1.6 per cent of reactive silica grades.(a)
Mining and processing Bauxite mining at the Worsley Alumina bauxite mine is conducted by shallow multi-pit open-cut mining techniques which have been developed
over the last 30 years to efficiently extract bauxite from the discrete, pod-like nature of the deposit.
Worsley Alumina refinery produces alumina exclusively from ore that is sourced from the Worsley Alumina bauxite mine. The refinery uses the
Bayer refining process to produce alumina.
Key energy sources for the processing operation include coal fired boilers, third party on-site gas-fired steam power co-generation plant and
third party leased on-site multifuel co-generation steam and power generation plant. Various long-term arrangements exist for the supply of coal
from the Collie coal mine and gas and gas transportation via the Dampier to Bunbury Natural Gas Pipeline. Raw materials and final product are
transported by rail.
Logistics and Bauxite ore is supplied from the Worsley Alumina bauxite mine to the Worsley Alumina refinery via a 51 km conveying system. Alumina from
marketing the Worsley Alumina refinery is railed to the Bunbury Port and loaded on ships for export to customers.
In FY2014, 42 per cent of South32 Worsley Alumina’s alumina sales were to South32’s aluminium smelters in southern Africa (Hillside and
Mozal Aluminium), to supply South32’s equity share, and the remainder was supplied to aluminium smelters predominantly in the Middle East
and the Pacific Basin.
Overview of Worsley Alumina is primarily powered by a mix of coal and natural gas with long-term arrangements in place. In 2014, Worsley Alumina
significant contracts entered into a 32 year lease for two multifuel co-generation units to generate steam and electricity.
Worsley Alumina’s gas supply is currently provided by affiliates of BHP Billiton Petroleum under two agreements, which will continue after
the Demerger. These arrangements are on arm’s-length terms and are due to expire during 2018 and 2023 respectively.
Griffin Coal (owned by the Lanco Group) has supplied coal to Worsley Alumina under a long-term coal supply agreement for use by Worsley
Alumina in steam and power generation. Griffin Coal did not supply coal to Worsley Alumina in December 2014 and January 2015 as a result
of Griffin Coal’s financial position. Griffin recommenced coal supply in February 2015, albeit at lower than contracted tonnage. Worsley
Alumina separately also sources coal from Premier Coal and has increased the amount of coal sourced pursuant to these arrangements.
Worsley Alumina is currently exploring available alternatives to sourcing coal for steam and power generation. Any new terms of coal (or other
energy) supply are likely to be higher cost to South32 than the historic arrangements with Griffin Coal.
Projects and As at 31 December 2014, there were no planned material development projects being undertaken or shortly to be undertaken at Worsley
developments Alumina.

(a) Mineral Resources and Ore Reserves above are based on the information in Section 7.2.

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(2) Summary historical financial and operating information


A summary of operating metrics and financial information for the integrated operations is set out below:

Table 7.2: Worsley Alumina operating metrics

6 months 12 months
ended December ended June
South32’s share H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Alumina production (kt) 1,953 1,970 3,916 3,675 2,917
Alumina sales (kt) 1,943 1,858 3,864 3,677 2,928
Realised alumina sales price (US$/t)(a) 335 304 318 307 339
Operating unit cost (US$/t produced) 260 232 272 291 363

(a) Realised sales price is calculated as sales revenue divided by sales volume.

Table 7.3: Worsley Alumina financial summary

6 months 12 months
South32’s share ended December ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue 651 565 1,229 1,130 992
Underlying EBITDA 143 108 162 60 (67)
Underlying EBIT 67 45 24 (115) (194)
Net operating assets 3,413 2,862 3,418 2,868 5,105
Minor and maintenance capital expenditure 27 22 56 77 127
Major projects capital expenditure — — — 77 773
Exploration expenditure — — — — —
Exploration expensed — — — — —

During FY2014, raw materials and consumables, energy and labour-related costs comprised 51 per cent, six per cent and 40 per cent of Worsley Alumina’s operating
cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

(b) South Africa Aluminium


(1) Overview
South Africa Aluminium comprises Hillside Aluminium (Pty) Ltd (Hillside). Hillside owns (100 per cent) and operates an aluminium smelter located at Richards Bay,
South Africa, approximately 200 km north of Durban.
Hillside is the largest aluminium smelter in the Southern Hemisphere and has a solid metal production capacity of 723 ktpa. Hillside solid metal production was 715 kt
in FY2014.
Previously, South Africa Aluminium’s operations included an aluminium smelter and casthouse owned by Billiton Aluminium SA (Pty) Ltd (Bayside). The Bayside
smelter was closed in FY2014. An agreement to sell the assets comprising the Bayside casthouse, which produces aluminium slab products, has been reached and
completion of the sale is subject to certain regulatory and other conditions, which are expected to be fulfilled during the first half of CY2015.

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The location of South Africa Aluminium’s operations is shown below:

Diagram 7.2: Location of South Africa Aluminium’s operations

An overview of South Africa Aluminium is set out below:

Table 7.4: South Africa Aluminium overview

Location Hillside is located at Richards Bay, Kwa-Zulu Natal, South Africa, approximately 200 km north of Durban.
Ownership 100 per cent owned by South32.
Operatorship Operated by South32.
Workforce In total, Hillside and Bayside had on average approximately 3,350 FTE employees and contractors in FY2014.
Following the closure of the Bayside smelter, as at 31 December 2014, the number of FTE employees and contractors at Hillside and Bayside
was 2,597 FTE employees and contractors.
History The Hillside smelter was commissioned between June 1995 and June 1996 with a production capacity of 466 ktpa.
In FY2004, the brownfield Hillside 3 expansion project increased metal production by 132 ktpa. Various improvement projects since then have
increased Hillside’s solid metal production capacity to 723 ktpa.
Title, leases or options Hillside owns the freehold title to the property on which the smelter operates. Hillside holds leases from the Transnet National Port Authority
(TNPA) over harbour facilities at Richards Bay Port.
Processing Hillside processes approximately 1,400 ktpa of alumina that is imported from Worsley Alumina. The initial stage of the process involves the
electrolytic reduction of alumina that has been dissolved in a molten electrolyte bath to produce liquid aluminium, which collects at the bottom
of the specialised reaction vessels that are known as pots. The molten aluminium is then tapped out of the pots and transferred to the casthouse
where it is cast into aluminium ingots.
Hillside manufactures 22.7 kg primary aluminium ingots at better than P1020 quality (maximum 1,000 ppm silicon and maximum 2,000 ppm
iron).
Logistics and Alumina and certain raw materials are imported through the Richards Bay Port. A portion of South32’s share of alumina produced at Worsley
marketing Alumina is supplied to Hillside Aluminium, pricing for which is index based.
In FY2014, Hillside exported approximately 80 per cent of its aluminium production in the form of primary aluminium ingot to customers
located principally in western Europe and Asia. All export product is sold via South32 Marketing and is shipped through Richards Bay Port.
The balance is sold into the domestic market, mainly to Hulamin under a long-term LME aluminium price-linked contract. All domestic product
is transported by road to its South African domestic customers.
Hillside has historically trucked approximately 96 ktpa liquid aluminium to the Bayside casthouse for conversion into aluminium slab products.
Following the expected sale of the Bayside casthouse in CY2015, liquid metal will continue to be trucked to the new owners of the Bayside
casthouse.

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Overview of Hillside sources power from Eskom, the South African Government-owned power utility, under long-term contracts. The price of electricity
significant contracts supplied to the Hillside Potline 1 and 2 is linked to the LME aluminium price and the South African rand/ US dollar exchange rate. The price of
electricity supplied to the Hillside Potline 3 is South African rand based and linked to the South African and United States producer price
indices. The electricity supply arrangements also include fully utilised 75 MW of power which is not covered by a long-term contract and is
priced at the same tariff as other South African industrial power users. As stated in Section 2.2(c):
• Eskom has announced a national program of load shedding and has stated that the South African power
system is likely to be constrained for the foreseeable future;
• the National Energy Regulator of South Africa is reviewing the terms of electricity supply arrangements
in respect of Hillside.
Hillside has three agreements with TNPA, the government port authority. These agreements are for the export stockyard facility, the liquid pitch
terminal facility and the alumina and petcoke silo facilities. These agreements expire in CY2019.
Projects and The engagement of a contractor is in progress to investigate the feasibility of introducing the AP3XLE technology enhancement at Hillside.
developments AP3XLE is a commercially available technology aimed at increasing efficiency at smelters (AP3XLE). The benefits are optimisation of direct
current energy consumption.

(2) Summary historical financial and operating information


A summary of operating metrics and financial information for the integrated operations is set out below:

Table 7.5: South Africa Aluminium operating metrics

6 months 12 months
ended December ended June
South32’s share H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Aluminium production (kt) 356 415 804 761 719
Aluminium sales (kt)(a) 352 401 804 772 713
Realised sales price (US$/t)(a) 2,338 1,985 2,007 2,154 2,309
Operating unit cost (US$/t produced)(b) 1,747 1,716 1,771 2,089 2,303

(a) Volumes and prices do not include any third party trading that may be undertaken independently of the equity production. Realised sales price is calculated as sales
revenue divided by sales volume.
(b) Total cost per tonne of aluminium produced.

Table 7.6: South Africa Aluminium financial summary

6 months 12 months
ended December ended June
South32’s share
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue 823 796 1,614 1,663 1,646
Underlying EBITDA 201 84 190 73 (10)
Underlying EBIT 167 48 121 1 (83)
Net operating assets 1,195 1,399 1,195 1,382 1,528
Minor and maintenance capital expenditure 10 7 28 17 14
Major projects capital expenditure — — — — —
Exploration expenditure — — — — —
Exploration expensed — — — — —

During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 56 per cent, 22 per cent and 14 per cent of South Africa
Aluminium’s operating cash costs respectively. The remaining cash costs included freight, consumables and maintenance, among other things.

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(c) Mozal Aluminium


(1) Overview
Mozal Aluminium is an aluminium smelter located 17 km from Maputo, Mozambique. Following implemention of the Demerger South32 will own 47.1 per cent of,
and operate, Mozal Aluminium. The operation includes a dedicated berth and other port terminal facilities at Matola, the port of Maputo, which are also operated by
South32. Mozal Aluminium produces standard aluminium ingots and its FY2014 production was 266 kt (South32’s share). Mozal Aluminium is the only aluminium
smelter in Mozambique and the second largest aluminium smelter in Africa.
The location of Mozal Aluminium’s operations is shown below:

Diagram 7.3: Location of Mozal Aluminium’s operations

An overview of Mozal Aluminium is set out below:

Table 7.7: Mozal Aluminium overview

Location Mozal Aluminium is located at Industrial Free Zone of Beluluane Industrial Park, Maputo province, Mozambique. The site is 17 km from
Maputo, the capital city of Mozambique.
Ownership Mozal Aluminium is a joint venture in which South32 will hold 47.1 per cent, MCA Metals Holding GmbH holds 25.0 per cent, Industrial
Development Corporation of South Africa Limited holds 24.0 per cent and the Government of the Republic of Mozambique holds 3.9 per cent
(through preference shares).
Operatorship Operated by South32.
Workforce Mozal Aluminium had on average 1,950 FTE employees and contractors in FY2014.
History Development of the Mozal Aluminium operation commenced in 1998 following a feasibility study undertaken by Billiton Plc. Production
commenced in 2000 with a smelter capacity of 253 ktpa (100 per cent basis). In 2003, the Mozal Aluminium expansion project (Mozal 2) was
commissioned and expanded the smelter’s capacity to 566 ktpa (100 per cent basis).
Title, leases or options Mozal Aluminium currently operates under a 50-year Investment Project Authorisation (Mozal IPA) that allows it to use the land for the
operating plant and to access certain facilities within the Maputo harbour. The authorisation is renewable for a further 50 years provided Mozal
Aluminium maintains effective production in accordance with the terms of the Mozal IPA.

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Processing In FY2014 Mozal procured 1,072 kt of alumina that was imported from Worsley Alumina. 505 kt of that amount was procured by South32.
The smelting process involves the electrolytic reduction of alumina that has been dissolved in a molten electrolyte bath to produce liquid
aluminium in reaction pots. The molten aluminium, which collects at the bottom of the pots is then tapped out and transferred for casting into
aluminium ingots.
Mozal Aluminium has the capacity to produce 566 ktpa aluminium (100 per cent basis) and manufactures 23.7 kg ingots with a purity grade
of at least 99.7 per cent.
Mozal Aluminium utilises hydroelectric power generated by Hidroeléctric Cahora Bassa (HCB) situated on the Zambezi River in the northwest
of Mozambique. HCB delivers power into the South African grid to the national electricity supplier, Eskom. Mozal Aluminium sources this
power via Mozambique Transmission Company (Motraco).
Logistics and Mozal Aluminium operates a berth at the Matola Port, Maputo, which is located 15 km from the smelter.
marketing
Alumina and key raw materials such as petroleum coke and liquid pitch are shipped to Matola Port via the same berth that is used by Mozal
Aluminium to export aluminium.
All raw materials and product are trucked to and from the Mozal Aluminium smelter to and from the port facilities.
Most of Mozal Aluminium’s aluminium is sold into Europe; however, a portion of its product is used domestically in Mozambique by Midal
Cables International.
Overview of Mozal Aluminium sources power under an electricity supply agreement with Motraco, a transmission joint venture between Eskom and the
significant contracts national electricity utilities of Mozambique and Swaziland.
Mozal Aluminium’s port facilities are governed by a lease with the Company of Railways and Harbours of Mozambique. This lease covers the
Matola harbour facilities consisting of a berth, storage silos, loading and unloading facilities, conveyor belts, roads, storage areas, parking and
administration facilities located in the Maputo harbour area.
Mozal Aluminium has recently agreed a long-term domestic aluminium metal supply agreement with Midal Cables International to supply
50,000 tonnes of aluminium ingots per year. Deliveries have recently commenced.
Projects and The AP3XLE project technology referred to in Section 7.1(b) is also currently in selection phase for Mozal Aluminium.
developments

(2) Summary historical financial and operating information


A summary of operating metrics and financial information for the integrated operations is set out below:

Table 7.8: Mozal Aluminium operating metrics

6 months 12 months
ended December ended June
South32’s share H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Aluminium production (kt) 135 134 266 264 264
Aluminium sales (kt)(a) 137 142 276 264 265
Realised sales price (US$/t)(a) 2,482 2,049 2,080 2,318 2,374
Operating unit cost (US$/t produced) 1,867 2,045 1,962 2,201 2,189

(a) Volumes and prices do not include any third party trading that may be undertaken independently of the equity production. Realised sales price is calculated as sales
revenue divided by sales volume.

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Table 7.9: Mozal Aluminium financial summary

6 months 12 months
ended December ended June
South32’s share
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue 340 291 574 612 629
Underlying EBITDA 88 17 52 31 51
Underlying EBIT 70 (1) 16 (3) 18
Net operating assets 628 634 627 669 777
Minor and maintenance capital expenditure 5 3 8 7 9
Major projects capital expenditure — — — — —
Exploration expenditure — — — — —
Exploration expensed — — — — —

During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 55 per cent, 29 per cent and 13 per cent of Mozal
Aluminium’s operating cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

(d) Brazil Aluminium


(1) Overview
The Brazil Aluminium business comprises South32’s interests in:
• MRN Mine (14.8 per cent owned by South32);
• Alumar consortium, which is comprised of an alumina refinery (36 per cent owned by South32) and aluminium smelter (40 per cent owned by South32)
(together with certain interests in ancillary facilities and lands).
South32’s Brazilian Aluminium business interests are held through its wholly-owned subsidiary, BMSA.
Mineração Rio do Norte S.A. (MRN) is a Brazilian corporation, which owns the MRN Mine, a bauxite mine located in the Trombetas region in the state of Pará,
Brazil. The mine is an open-cut operation with a capacity of 18 Mtpa of washed bauxite (100 per cent basis). The MRN Mine’s FY2014 production was 17.7 Mt of
bauxite (100 per cent basis) and the MRN Mine has a reserve life of six years. The majority of the bauxite produced from the MRN Mine is sold to shareholders in
MRN and their related parties under long-term contracts. South32 is currently entitled to a total annual base volume of 2.4 Mtpa and a maximum of 2.7 Mtpa of
bauxite under its contracts with MRN, which South32 currently supplies to the Alumar refinery.
Alumar comprises an alumina refinery with a nominal capacity of 3.5 Mtpa (100 per cent basis) and aluminium smelter with a nominal capacity of 440 ktpa (100 per
cent basis). These operations and their integrated port facilities are located at São Luís, in the state of Maranhão, Brazil. FY2014 saleable production was 1,262 kt of
alumina (South32’s share) and 104 kt of aluminium (South32’s share). During FY2014, approximately 16 per cent of Alumar’s alumina production was used to feed
the Alumar smelter, while the remainder was exported.
South32 sources electricity for Alumar under two long-term supply agreements with Eletronorte (a Brazilian power generation concessionaire). Since FY2013,
South32 has generated revenue through the sale of surplus electricity into the transmission grid with a total of 1,188 GWh sold in FY2014.

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(2) MRN Mine description


The location of the MRN Mine is set out below:

Diagram 7.4: Location of the MRN Mine’s operations

An overview of the MRN Mine is set out below:

Table 7.10: MRN Mine overview

Location The MRN Mine is located approximately 40 km from Porto Trombetas, which is 880 km from Belém, the capital of Pará, Brazil.
Ownership The MRN Mine is owned by MRN, which is a Brazilian corporation in which South32 holds a 14.8 per cent interest, Alcoa and its affiliates(a)
hold 18.2 per cent, Vale S.A. (Vale) holds 40 per cent, Alcan Alumina Ltda (Rio Tinto Alcan) holds 12 per cent, Companhia Brasileira
de Aluminio S.A. holds 10 per cent, and Norsk Hydro Brasil Ltda holds five per cent.
Operatorship Independent joint venture company.
Workforce MRN had on average approximately 3,400 FTE employees and contractors in FY2014.
History MRN was incorporated in 1967 by Rio Tinto Alcan and established in 1974 as a joint venture involving Rio Tinto Alcan, Vale and other
shareholders. Mine operations commenced in 1979 and the first shipment from the MRN Mine was in 1979.
The adjacent Cruz Alta Project, initially associated with Alcoa and Billiton Group companies, was consolidated with the Trombetas Project in
1992 to form the MRN Mine.
In 2003 and 2007, expansions of the operation increased production capacity to 18 Mtpa of washed bauxite (100 per cent basis).
Title, leases or options MRN holds 44 mining leases, all of which are mining concessions issued under the Brazilian Mining Code. The mining leases are grouped into
a single mining unit (Grupamento Mineiro/Mining Group), under no. 950.000/1997. These leases cover an area of 143,000 ha.
With respect to the environmental licensing process, MRN has already applied for environmental licences for new exploration of areas
surrounding the MRN Mine, which requires authorisation for environmental studies. However, there is a civil investigation in respect of certain
of these environmental licence applications which has resulted in delays in the environmental permitting of some of MRN’s exploration
activities until consultation with potentially affected local traditional communities is undertaken. MRN has engaged in negotiations with the
communities who filed the initial complaint to resolve this issue.

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Resources As at 30 June 2014, in 100 per cent terms, the MRN Mine’s total Mineral Resources (washed) were 527 Mdmt at 50.2 per cent of available
and reserves alumina and 4.2 per cent of reactive silica grades. Total Ore Reserves (washed) were 98 Mdmt (100 per cent basis) at 49.4 per cent of available
alumina and 4.6 per cent of reactive silica grades.(b)
Mining and processing The MRN Mine is an open-cut strip mining operation that has an 18 Mtpa installed bauxite capacity. Mined ore is hauled to primary crushers
and then transported by conveyor belt to the beneficiation plant, where it is washed and classified by granulometry. Bauxite fines are recovered
by cyclone and filtering.
On-site power is provided by two thermoelectric power plants, with installed power rating of 60.6 MW.
Logistics and Bauxite is transported to Porto Trombetas, a river port, via a 28 km rail line that connects the mine area to the port.
marketing
All bauxite is transported from the port via ship to customers, including the Alumar members’ share.
Overview of MRN currently sells the majority of its production to its shareholders and their related parties, with sales primarily governed by long-term
significant contracts contracts that establish annual quantities and similar sales terms for each shareholder. The quantities are confirmed annually and may vary
slightly. From the current bauxite production, 70 per cent is shipped to Alunorte and Alumar, two of the main Brazilian refineries, and the
remainder is exported, mainly to refineries located in the North Atlantic Ocean seaboard.
In recent times, price reductions have applied under these sale agreements due to the quality of bauxite grades supplied. However, for South32,
the sale price achieved by MRN becomes an input cost into the operations at Alumar, such that variations in the price of bauxite supplied by
MRN have a limited net financial impact on South32.
Projects and The MRN Mine’s current reserve base supports mining until 2021. MRN is currently considering extending the mine’s life to approximately
developments 2043.
This extension will require MRN’s shareholders to agree on the optimal expansion configuration and to potentially contribute to the substantial
capital expenditure.

(a) Alcoa Alumínio S.A., Alcoa World Alumina LLC and Alcoa World Alumina Brasil Ltda.
(b) Mineral Resources and Ore Reserves above are based on the information in Section 7.2.

(3) Alumar description


The location of Alumar’s operations is set out below:

Diagram 7.5: Location of Alumar’s operations

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An overview of Alumar is set out below:

Table 7.11: Alumar overview

Location Alumar is located at São Luís, Maranhão, Brazil.


Ownership The Alumar alumina refinery is an unincorporated joint venture with South32 holding 36 per cent, Alcoa and its affiliates holding 54 per cent
and Rio Tinto Alcan holding 10 per cent.
The Alumar aluminium smelter is an unincorporated joint venture with South32 holding 40 per cent and Alcoa holding 60 per cent.
Operatorship Alcoa operates both the refinery and smelter.
Workforce Alumar had on average approximately 2,750 FTE employees and contractors in FY2014.
History Alumar commenced operations in 1984 with refining capacity (on a 100 per cent basis) of 0.9 Mtpa and smelter capacity of 110 ktpa. Since
then, several expansions have been implemented, including (on a 100 per cent basis):
• in 1986, smelter capacity was increased from 110 to 250 ktpa as Line II of the smelter commenced operations;
• in 2006, smelting capacity was increased to 440 ktpa as Line III of the smelter commenced operations;
• in 2009, the refinery was substantially expanded, increasing capacity to 3.5 Mtpa.
Title, leases or options All assets are held on land owned by Alumar or occupied by Alumar pursuant to public deeds of right of easement executed in 1982 and 1983
for undetermined terms with the State of Maranhão, Brazil.
The creation of an environmental conservation area adjoining the Alumar site has been considered by federal and state governments, which may
lead to changes in permitting procedures in respect of the area, as well as to delays in the permitting procedures already in progress. However,
at this stage there is no official proposal regarding the creation of the conservation area.
Mining and processing Alumar refinery
Bauxite ore is refined using the Bayer refining process in which bauxite is mixed with a caustic soda solution and transferred to a digestion
vessel, where it is heated under pressure. The resultant solution is clarified before aluminium hydrate is precipitated. The filter cake is
subsequently fed into calciners where it is roasted to produce alumina.
Alumar smelter
The smelting process involves the electrolytic reduction of alumina that has been dissolved in a molten electrolyte bath to produce liquid
aluminium in reaction pots. The molten aluminium, which collects at the bottom of the pots, is then tapped out and transferred for casting into
aluminium ingots.
Production from potlines II and III is currently suspended due to market conditions reducing overall annual capacity to 124 ktpa (100 per cent
basis), and potline I operations are subject to ongoing review having regard to market conditions.
Logistics and Alumar refinery
marketing
Alumar’s port facilities provide the primary entry point for raw materials and also serve as an export facility for alumina. The majority of
alumina produced at the Alumar refinery is exported via the port to customers.
The port includes two terminals at São Marcos Bay, which have capacity to receive 76 kt (gross tonne) ships.
Alumar smelter
South32’s share of aluminium produced at Alumar is largely sold in the Brazilian domestic market on a Free Carrier basis where the customer is
responsible for contracting and paying for transportation.

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Overview of South32 acquires bauxite to feed the Alumar refinery under six long-term bauxite off-take agreements with MRN, each with an expiry and
significant contracts contracted base supply amount as follows:
Expiry date Bauxite to be supplied (ktpa)
1 January 2018 800
1 January 2020 115
1 January 2020 700
1 January 2023 500
1 January 2032 86
1 January 2033 200
MRN has agreed to negotiate in good faith during the final year of each agreement with a view to entering into new off-take arrangements for the
supply of similar volumes of bauxite. If bauxite cannot be sourced from the MRN Mine (noting the current reserve base at the MRN Mine
supports mining until 2021, although expansion options may exist), alternative supply of bauxite may need to be sourced for Alumar, which may
be under different terms than under South32’s current contracts with MRN.
South32 acquires electricity for Alumar from Eletronorte (a Brazilian power generation concessionaire) under two long-term contracts (one for
the smelter and the other for the refinery) which will expire in 2024. As noted in Section 2.2(c) the risk of electricity rationing occurring has
increased recently in Brazil. The bauxite is transported from the MRN Mine to Alumar under arrangements with specialised freight companies,
including Empresa de Navegacão Elcano S.A.
Projects and A preliminary concept study has been prepared with a view to ‘debottlenecking’ the refinery (improving supply chain and processing efficiency
developments and increasing the capacity of the refinery) to increase capacity.

(4) Summary historical financial and operating information


A summary of operating metrics and financial information for South32’s combined Brazil Aluminium businesses is set out below:

Table 7.12: Brazil Aluminium operating metrics

6 months 12 months
ended December ended June
South32’s share H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Alumina production (kt) 680 633 1,262 1,205 1,235
Aluminium production (kt) 26 63 104 154 170
Alumina sales (kt) 694 598 1,248 1,275 1,201
Aluminium sales (kt) 25 62 104 164 163
Realised alumina sales price (US$/t)(a) 323 293 300 296 324
Realised aluminium sales price (US$/t)(a) 2,360 1,968 2,000 2,061 2,252
Alumina operating unit cost (US$/t produced)(b) 203 254 239 275 258
Aluminium operating unit cost (US$/t produced)(c) 4,692 2,462 2,644 2,416 2,576

(a) Realised sales price is calculated as sales revenue divided by sales volume.
(b) Includes cost of acquiring bauxite from MRN.
(c) Includes cost of alumina transferred from Alumar refinery to the Alumar smelter at the alumina production cost. Excludes revenue from sales of surplus electricity
into the transmission grid, which is included in Other Income in Table 7.13.

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Table 7.13: Brazil Aluminium financial summary

6 months 12 months
ended December ended June
South32’s share
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales Revenue 268 266 529 637 660
Alumina 224 175 374 378 389
Aluminium 59 122 208 338 367
Intra-segment elimination (15) (31) (53) (79) (96)
Other income(a) 117 36 121 31 3
Underlying EBITDA 140 35 127 44 3
Alumina 86 25 54 47 70
Aluminium 54 10 73 (3) (67)
Underlying EBIT 101 (7) 44 (40) (80)
Alumina 56 (8) (10) (17) 7
Aluminium 45 1 54 (23) (87)
Net operating assets 938 1,010 968 1,031 1,144
Alumina 750 848 752 869 949
Aluminium 188 162 216 162 195
Minor and maintenance capital expenditure 5 7 9 6 12
Major projects capital expenditure — — — — —
Exploration expenditure — — — — —
Exploration expensed — — — — —

(a) Other income primarily comprises revenue generated from the sale of surplus electricity into the transmission grid.

During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 53 per cent, 28 per cent and 16 per cent of Brazil
Aluminium’s operating cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

(e) South Africa Energy Coal


(1) Overview
South Africa Energy Coal, which is 90 per cent owned by South32, operates the Khutala, Klipspruit, Wolvekrans and Middelburg mines in the Witbank region in the
Mpumalanga province, South Africa. South Africa Energy Coal’s mines are open-cut, other than the Khutala underground bord and pillar mine. South Africa Energy
Coal also owns a 21 per cent interest in RBCT.
South Africa Energy Coal is the third-largest exporter and the fifth-largest domestic supplier of energy coal in South Africa. In FY2014, it produced 30.4 Mt of energy
coal (100 per cent basis), of which approximately 55 per cent was sold to Eskom. The remaining production was exported, predominantly to India and China. As at
30 June 2014, the reserve lives of South Africa Energy Coal’s mines ranged from six years at Khutala to 23 years at Middelburg.

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The location of the South Africa Energy Coal mines is shown below.

Diagram 7.6: Location of South Africa Energy Coal’s operations

An overview of South Africa Energy Coal is provided below:

Table 7.14: South Africa Energy Coal overview

Location South Africa Energy Coal’s mines are all located within the Witbank coalfield in the Mpumalanga province.
Khutala mine is located approximately 40 km southwest of the town of Witbank and 100 km east of Johannesburg.
Klipspruit mine is located approximately 30 km southwest of the town of Witbank and 120 km east of Johannesburg.
The Wolvekrans Middelburg complex is located approximately 20 km southeast of the town of Witbank and 170 km east of Johannesburg.
Ownership South Africa Energy Coal is 90 per cent owned by South32, two per cent owned by its employees through an Employee Share Ownership Plan
(ESOP) and eight per cent owned by a BBBEE consortium led by Pembani Group (Pty) Limited (Pembani). The interests owned by the ESOP
and BBBEE consortium were acquired using vendor finance, with the loans repayable to South32 via distributions attributable to these parties,
pro rata to their share in South Africa Energy Coal. From an accounting perspective, until these loans are repaid, South32’s interest
in Underlying EBITDA generated by South Africa Energy Coal is 100 per cent. Following repayment of the loans, from an accounting
perspective, South32’s interest in Underlying EBITDA will be 90 per cent.
Operatorship Operated by South32.
Workforce South Africa Energy Coal had on average approximately 10,000 FTE employees and contractors in FY2014.
History The history of the currently operating mines is summarised below:
• The Middelburg mine commenced production in 1982 and in 2008 subsumed the Douglas mine (which had commenced operation in
1979). Douglas and Middelburg were previously owned through the Douglas Tavistock Joint Venture (DTJV), in which BHP Billiton had
an 84 per cent share and a subsidiary of Glencore Plc (Glencore) had a 16 per cent share. The DTJV was amended in 2008 such that it
ceased being a production joint venture. The Middelburg complex was split to form the Middelburg and Wolvekrans mines during 2011,
which now operate as a combined complex.
• Khutala commenced as an underground bord and pillar mine in 1984, while its open-cut operations started in 1996.
• Klipspruit was initially a truck and shovel mini-pit operation, which commenced in 2003. Dragline operations started in June 2005.
Since 2000, South Africa Energy Coal has completed a number of coal mine and infrastructure-related transactions with South African junior
miners in addition to its combined empowerment transaction, which included a BBBEE transaction with Pembani and an ESOP. These were in
line with South African empowerment legislation, as well as the requirements set out in the Mining Charter as published in the Mineral and
Petroleum Resources Development Act of 2002 (South Africa).

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Title, leases or options South Africa Energy Coal holds new order mining rights that provide it with the exclusive right to mine minerals for a period of 30 years from
the date of grant. Each of the mining rights has a right of renewal for a further 30 years, subject to compliance with the terms and conditions of
the existing mining right. These obligations include the development and implementation of Social and Labour Plans, which South Africa
Energy Coal has prepared and submitted and is awaiting approval.
South Africa Energy Coal’s new order mining rights were issued between October and December 2011 and cover each of South Africa Energy
Coal’s four operating mines as well as associated exploration areas and infrastructure.
The new order mining rights in respect of the Khutala and Klipspruit mines are held independently by South Africa Energy Coal.
The Wolvekrans Middelburg complex comprises of four new order mining rights. One of the new order mining rights is held independently by
South Africa Energy Coal. The remaining three are currently held jointly by South Africa Energy Coal (84 per cent) and Glencore (16 per cent).
The joint ownership of these three new order mining rights traces back to the DTJV agreement. South Africa Energy Coal and Glencore are
pursuing an amendment to the joint ownership of the mining rights such that South Africa Energy Coal and Glencore would have independent
new order mining rights for their respective interests. South Africa Energy Coal and Glencore currently mine and operate their respective areas
independently and for their own account.
South Africa Energy Coal applied for a mining right over an area referred to as Pegasus in May 2013. It also holds prospecting rights over a
number of other areas.
Resources As at 30 June 2014, in 100 per cent terms, South Africa Energy Coal’s Measured, Indicated and Inferred Coal Resources totalled 5,170 Mt.
and reserves South Africa Energy Coal’s Proved and Probable Coal Reserves and Marketable Coal Reserves were 583 Mt and 435 Mt respectively (100 per
cent basis).(a)
Mining and processing South Africa Energy Coal’s mining and processing methods vary by mine.
Khutala mine produced 9.7 Mt of energy coal in FY2014 (100 per cent basis). Most of the production was from underground bord and pillar
operations and approximately 1.5 Mt was produced from a small open-cut area (100 per cent basis). The mined coal is crushed at two crushers,
which have a combined nominal capacity in excess of 12 Mtpa (100 per cent basis).
Klipspruit is a single dragline, multi seam open-cut mine that is combined with a truck and shovel mini pit. Run-of-mine (ROM) coal is
processed at the Phola Coal Processing Plant, which is a 50:50 joint venture with a subsidiary of Anglo American Plc. South Africa Energy
Coal’s share of the plant’s nominal capacity is in excess of 7 Mtpa. Klipspruit produced 7.3 Mt of energy coal in FY2014.
Wolvekrans is an open-cut mine actively mining five pits, while Middelburg is an open-cut mine actively mining two pits. The Wolvekrans
Middelburg complex includes tips and crushing plants, two export wash plants, one middlings wash plant and a de-stoning plant with a
combined nominal capacity in excess of 17 Mtpa. The Wolvekrans Middelburg complex produced 13.4 Mt of energy coal in FY2014 (100 per
cent basis).
Power supplied to the mines is sourced from Eskom under long-term contracts. Potable water is supplied to the various operations by Eskom
(43 ML) and Phola Plant (2 ML), for a total of 45 ML each month. All process water is sourced from pollution control dams with a combined
capacity of 1,830 ML. All operations have potable water supply contracts with Eskom.
Logistics and Logistics and marketing arrangements vary for each of the operations that make up South Africa Energy Coal.
marketing
The Khutala mine is located adjacent to Eskom’s Kendal power station. The entire Khutala resource, except for coal mined from the No. 5 coal
seam (approximately 235 kt in FY2014), is dedicated to supplying Kendal. This coal is loaded directly onto a conveyor system which feeds the
Kendal power station and is sold to Eskom on a cost-plus basis.
Klipspruit produces a 6,000 kcal/kg and a 4,800 kcal/kg export product. After processing, the coal is railed 611 km to RBCT via the Transnet
rail link. Klipspruit coal is exported, predominantly to India and China.
The Wolvekrans Middelburg complex produces both export and domestic product. Export production can be blended to suit market
requirements with 6,000 kcal/kg and 4,800 kcal/kg products currently produced. The complex utilises a 558 km Transnet rail link to export coal
via RBCT. Export coal is predominantly shipped to India and China. Domestic production is transported by conveyor to Eskom’s Duvha coal-
fired power station, which is located adjacent to the Middelburg mine.

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Overview of South Africa Energy Coal has two long-term coal supply agreements (CSAs) in place with Eskom. The first CSA is for the supply of energy
significant contracts coal from the Khutala mine to Eskom’s Kendal power station that expires in 2033. The second CSA is for the supply of energy coal from the
Wolvekrans Middelburg complex to Eskom’s Duvha Power Station that expires in 2034.
South Africa Energy Coal recently entered into a rail agreement with Transnet that expires in March 2024. As part of the negotiation process,
South Africa Energy Coal agreed to relinquish up to five per cent of its rail entitlement for allocation to emerging miners. The risk associated
with South Africa Energy Coal failing to obtain adequate allocation of rail capacity in the future is set out in Section 2.2(b).
Projects and Further development opportunities have been identified to extend the mine lives of the existing Khutala and Klipspruit mining domains. Studies
developments relating to these projects are at various stages of investigation and are outlined in Section 5.4(e).
South Africa Energy Coal continues to evaluate options to extract value from its broader portfolio. Assessments have been made or are
currently underway in relation to Pegasus, as well as Leandra and Naudesbank, areas over which South Africa Energy Coal has prospecting
rights.

(a) Mineral Resources and Ore Reserves above are based on the information in Section 7.2.

(2) Summary historical financial and operating information


A summary of financial and operating metrics for South Africa Energy Coal are set out below (excluding third party sales):

Table 7.15: South Africa Energy Coal operating metrics

6 months 12 months
ended December ended June
100 per cent terms H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Energy coal production (kt) 16,525 14,973 30,384 31,627 33,279
Domestic sales (kt)(a) 9,137 8,354 16,330 18,130 19,620
Export sales (kt)(a) 7,913 6,591 13,298 13,935 14,106
Realised domestic sales price (US$/t)(a) 23 22 22 23 27
Realised export sales price (US$/t)(a) 60 69 66 75 97
Operating unit cost (US$/t produced) 36 39 35 42 44

(a) Volumes and prices do not include any third party trading that may be undertaken independently of the equity production. Realised sales price is calculated as sales
revenue divided by sales volume.

Table 7.16: South Africa Energy Coal financial summary

6 months 12 months
ended December ended June
100 per cent terms
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue(a) 683 639 1,247 1,458 1,894
Underlying EBITDA 83 54 197 115 416
Underlying EBIT (9) (44) 4 (96) 226
Net operating assets 1,014 1,313 989 1,334 1,425
Minor and maintenance capital expenditure 50 17 59 115 137
Major projects capital expenditure 8 5 6 18 25
Exploration expenditure — — — — —
Exploration expensed — — — — —

(a) Includes domestic and export sales revenue.


During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 51 per cent, eight per cent and 37 per cent of South Africa
Energy Coal’s operating cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

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(f) Illawarra Metallurgical Coal


(1) Overview
Illawarra Metallurgical Coal, which is 100 per cent owned by South32, owns and operates three underground metallurgical coal mines, Appin, West Cliff and
Dendrobium, and two preparation plants, West Cliff Coal Preparation Plant (CPP) and Dendrobium CPP. These operations are all located in the southern coalfields of
New South Wales, Australia, near the city of Wollongong and approximately 75 km to 90 km southwest of Sydney and between 8 km and 38 km from Port Kembla.
Metallurgical coal is mined from the Bulli and Wongawilli seams and is crushed, screened and washed at the two CPPs, which have a combined processing nominal
capacity of 12.5 Mtpa of raw coal. Product coal is then trucked to either Port Kembla or to BlueScope Steel’s Port Kembla steelworks. In FY2014, Illawarra
Metallurgical Coal produced a total of 6.0 Mt of metallurgical coal and 1.5 Mt of energy coal. As at 30 June 2014, the reserve lives of the Illawarra Metallurgical Coal
mines were 25 years at Appin, two years at West Cliff and nine years at Dendrobium.
The location of Illawarra Metallurgical Coal’s operations is shown below:

Diagram 7.7: Location of Illawarra Metallurgical Coal’s operations

An overview of Illawarra Metallurgical Coal is set out below:

Table 7.17: Illawarra Metallurgical Coal overview

Location Illawarra Metallurgical Coal is located in the Illawarra region of New South Wales, Australia, near the city of Wollongong and approximately
75 km to 90 km southwest of Sydney. Distances between the mines and the port facility at Port Kembla are between 8 km and 38 km.
Illawarra Metallurgical Coal’s operations are in proximity to the surrounding suburban areas of Illawarra, Wollondilly and Macarthur, and have
the potential to impact on nearby infrastructure, environmental features and residential areas. The business has a strong community presence,
which is supported by a comprehensive stakeholder engagement management plan, which includes structured community investment initiatives.
Ownership 100 per cent owned by South32.
Operatorship Operated by South32.

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Workforce Illawarra Metallurgical Coal had on average approximately 2,500 FTE employees and contractors in FY2014.
Employment terms for some employees in the Illawarra Metallurgical Coal business are governed by collective employment agreements, some of
which have expired and are under renegotiation or are due to expire within the near future. South32 intends to engage with the relevant employees
on the renewal of these agreements:

Enterprise agreement Expiry


Dendrobium mine April 2014
Dendrobium CPP July 2015
West Cliff mine and CPP July 2015
Appin mine July 2015

History Illawarra Metallurgical Coal has operated in the Illawarra region for 80 years. Over that time it has produced metallurgical coal from a number of
mines. Of the currently operating mines:
• Appin mine commenced production in 1962 and commissioned its first longwall operation in 1969;
• West Cliff mine commenced production in 1976;
• the current Dendrobium mine commenced production in 2005.
Title, leases Illawarra Metallurgical Coal holds a number of coal leases, mining leases and exploration titles.
or options
Consolidated Coal Leases (CCL) covering the primary operating areas for, and granted to, Illawarra Metallurgical Coal cover a total of 43,071 ha.
The key CCLs include:

Operating mines CCL Expiry


Appin and West Cliff 767 2029
West Cliff 724 2031
Dendrobium1 768 Pending application for further 21 years2

1 Also covers the Cordeaux mine, which was closed in 2001.


2 South32 does not consider there is any basis for non-renewal and the rights granted under the expired lease can continue until the application has been resolved.

Resources As at 30 June 2014, Illawarra Metallurgical Coal Measured, Indicated and Inferred Coal Resources totalled 1,306 Mt. Illawarra Metallurgical
and reserves Coal’s Proved and Probable Coal Reserves and Marketable Coal Reserves were 208 Mt and 166 Mt respectively.(a)
Mining and Appin, West Cliff and Dendrobium are all longwall mines and the existing level of equipment as at 30 June 2014 supports an annual ROM capacity
processing of 4 Mtpa, 3 Mtpa and 5 Mtpa, respectively. Production at Illawarra Metallurgical Coal is approximately 80 per cent metallurgical coal and 20 per
cent energy coal.
All coal produced by Illawarra Metallurgical Coal is washed at one of the two CPPs, with coal from:
• both Appin and West Cliff mines being washed at the West Cliff CPP, which has a nominal capacity of 7.5 Mtpa of raw coal;
• Dendrobium mine being transported via rail for washing at the Dendrobium CPP, which has a nominal capacity of 5 Mtpa of raw coal and is
located at the BlueScope Steel site at Port Kembla.
Electricity is sourced from the New South Wales electricity grid. Illawarra Metallurgical Coal sources water for Appin and Dendrobium mines from
Sydney Water. The West Cliff mine and CPP have their own water supply and water is supplied to the Dendrobium CPP pursuant to lease
arrangements entered into with BlueScope Steel.

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Logistics and Coal is hauled by road to the Port Kembla Coal Terminal for export to customers globally. Coal is also sold domestically and, in the case of
marketing BlueScope Steel, coal is delivered from the Dendrobium CPP by conveyor or truck to the blending yard at BlueScope Steel’s Port Kembla
steelworks.
In FY2014, 63 per cent of coal produced at Illawarra Metallurgical Coal was exported and 37 per cent was sold domestically.
Illawarra Metallurgical Coal utilises the Port Kembla Coal Terminal for shipping coal to customers globally. Illawarra Metallurgical Coal is one of
six equal-share consortium partners in, and currently the manager of, Port Kembla Coal Terminal Ltd. Port Kembla Coal Terminal Ltd’s right to
operate the Port Kembla Coal Terminal is granted under a lease agreement with Port Kembla Port Corporation. The lease agreement for the coal
terminal expires in 2030.
Port Kembla Coal Terminal is required to undertake a necessary restoration and compliance program. During the next five years South32 is
expecting to provide a non-interest bearing shareholder loan for its share of these works. The final contribution required from South32 for this
restoration and compliance program is subject to actual usage of the facility over the five year period of the project and consortium partner approval
and funding.
Overview of Illawarra Metallurgical Coal has in place a number of contractual arrangements with BlueScope Steel. These include:
significant
contracts
• a long-term agreement that governs the lease of the Dendrobium coal washery buildings located within BlueScope Steel’s Port Kembla
steelworks expiring in 2052;
• the rail operations agreement that governs the Kemira Valley rail link which connects the Dendrobium mine to the Dendrobium CPP (i.e. coal
washery), which is located within BlueScope Steel’s Port Kembla steelworks, that can be terminated by either party with six months’ notice;
• a shared services agreement that governs the services that BlueScope Steel provides to Illawarra Metallurgical Coal in respect of the coal
washery located at BlueScope Steel’s Port Kembla steelworks and Illawarra Metallurgical Coal operations. Each service provided will
continue indefinitely until either party terminates a particular service and the services in relation to the coal washery will terminate when the
lease for the coal washery buildings terminates;
• a long-term contract pursuant to which Illawarra Metallurgical Coal supplies metallurgical coal to BlueScope Steel’s steelworks located at Port
Kembla, expiring in 2032. Under the coal supply agreement:
• the coal price is based on a pricing formula, which is calculated by reference to a basket of underlying contracts from Illawarra
Metallurgical Coal and BHP Billiton-Mitsubishi Alliance coal sales. At the time that the parties entered into the agreement, the price of
coal under these contracts was set on an annual benchmark basis. In recent years, pricing of the coal sold pursuant to these underlying
contracts has moved towards index pricing. The contract pricing mechanism for future periods is under discussion with BlueScope Steel
and BlueScope Steel has made certain claims in relation to historical pricing and the quality of coal supplied under the contract
(see Section 2.1(f));
• BlueScope Steel has pre-emptive rights and a purchase option in respect of certain disposals of Illawarra Metallurgical Coal entities and
assets. However, these rights will not be triggered by the Demerger or disposals of shares in South32 once its shares are admitted to an
official list of a recognised stock exchange, including in the context of a change of control.
At the time of the demerger of BlueScope Steel from BHP Billiton, BHP Billiton agreed to indemnify BlueScope Steel in respect of certain
potential past and future environmental liabilities arising from Illawarra Metallurgical Coal’s mines and related infrastructure that will form part of
South32’s assets. As a result of the allocation of liabilities in the Demerger agreements as summarised in Section 14.4, South32 will assume liability
for any potential liabilities arising out of the indemnity given in favour of BlueScope Steel. BlueScope Steel has not made any claims pursuant to
this indemnity since it was agreed in May 2002.
Coal seam gas extracted from Illawarra Metallurgical Coal’s mines is supplied to a power station owned and operated by Energy Developments
Limited (EDL). The gas is converted into electricity and then sold by Illawarra Metallurgical Coal to Endeavour Energy. Illawarra Metallurgical
Coal’s tolling services agreement with EDL and power supply agreement with Endeavour Energy are due to expire in 2016. South32 expects that
these contracts will be renegotiated prior to expiry.

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Projects and In June 2012, the BHP Billiton Board approved a US$845 million investment to sustain operations at Illawarra Metallurgical Coal by establishing
developments a replacement mining area at Appin mine (Appin Area 9 project). The replacement area will have a production capacity of 3.5 Mtpa and will
sustain Illawarra Metallurgical Coal’s production capacity at 9 Mtpa product coal. The Appin Area 9 project was 77.5 per cent complete at
31 December 2014 and is expected to be operational in 2016, at which point it will replace production at the West Cliff mine.
Beyond the Appin Area 9 project, Illawarra Metallurgical Coal has undertaken a number of assessments to determine preferred options for mine
life extension projects to sustain production at or above current levels. Opportunities exist (subject to receipt of requisite permits) within currently
held mining and exploration lease areas but outside existing development consents.

(a) Mineral Resources and Ore Reserves above are based on the information in Section 7.2.

(2) Summary historical financial and operating information


A summary of operating metrics and financial information for Illawarra Metallurgical Coal is set out below:

Table 7.18: Illawarra Metallurgical Coal operating metrics

6 months 12 months
ended December ended June
South32’s share H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Metallurgical coal production (kt) 3,858 2,614 5,974 6,664 6,621
Energy coal production (kt) 880 741 1,539 1,278 1,305
Metallurgical coal sales (kt) 3,447 2,579 5,921 7,032 6,233
Energy coal sales (kt) 799 677 1,623 1,410 1,098
Realised metallurgical coal sales price (US$/t)(a) 110 141 130 167 255
Realised energy coal sales price (US$/t)(a) 57 69 67 79 101
Operating unit cost (US$/t produced) 64 101 99 124 111

(a) Realised sales price is calculated as sales revenue divided by sales volume.

Table 7.19: Illawarra Metallurgical Coal financial summary

6 months 12 months
ended December ended June
South32’s share
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue(a) 425 410 878 1,287 1,701
Underlying EBITDA 120 70 135 302 818
Underlying EBIT 20 (8) (35) 154 659
Net operating assets 1,534 1,313 1,384 1,238 1,058
Minor and maintenance capital expenditure 108 67 110 80 148
Major projects capital expenditure 72 106 199 277 166
Exploration expenditure 2 3 5 7 14
Exploration expensed 2 3 5 7 14

(a) Includes metallurgical coal and energy coal sales revenue.

During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 22 per cent, six per cent and 49 per cent of Illawarra
Metallurgical Coal’s operating cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

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(g) Australia Manganese


(1) Overview
GEMCO is a manganese mining operation located in the Northern Territory, Australia. Following implementation of the Demerger, GEMCO will be 60 per cent
owned by South32. It is the largest and one of the lowest-cost manganese ore producers in the world. Its attributes include high-grade ore, open-cut mining operations,
its own port facilities located at Milner Bay, 16 km from mining operations, and its close proximity to Asian export markets. GEMCO, whose FY2014 production of
manganese ore was 4,776 kt (100 per cent basis), has a reserve life of 11 years.
TEMCO, a wholly-owned subsidiary of GEMCO, is a manganese alloy plant located in Tasmania, Australia. TEMCO is a medium-sized producer of HCFeMn, SiMn
and sinter using ore shipped from GEMCO, primarily using hydroelectric power. Production of manganese alloy in FY2014 was 269 kt (100 per cent basis).

(2) GEMCO description


The location of GEMCO operations is shown below:

Diagram 7.8: Location of GEMCO’s operations

An overview of GEMCO is set out below:

Table 7.20: GEMCO overview

Location GEMCO is located on Groote Eylandt, Northern Territory, Australia, approximately 16 km from the town of Alyangula.
Ownership South32 will hold a 60 per cent interest in GEMCO and Anglo American Plc holds the remaining 40 per cent.
Operatorship Operated by South32.
Workforce GEMCO had on average approximately 900 FTE employees and contractors in FY2014.
The employment of some of the employees at GEMCO is governed by the Groote Eylandt Mining Company Enterprise Bargaining Agreement
2012, which expired on 1 March 2015. South32 intends to engage with the relevant employees and their representatives in relation to the
renewal of this agreement.
History GEMCO commenced mining at Groote Eylandt in 1964 under BHP Limited ownership. A crushing and wet screening plant was subsequently
commissioned.
The beneficiation plant was commissioned in 1972 at a 1.0 Mtpa capacity (100 per cent basis) and has since undergone a series of expansions.
The most recent of these expansions was the GEMCO Expansion Project, which was completed in 2013 and increased GEMCO’s capacity from
4.2 Mtpa to 4.8 Mtpa (100 per cent basis) through the introduction of a dense media circuit by-pass facility. The expansion also addressed key
infrastructure constraints by increasing road and port capacity to 5.9 Mtpa (100 per cent basis), creating 1.1 Mtpa of additional infrastructure
capacity for future expansions.

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Title, leases or options Current mining licences (MLN 951-953,956-961) cover an area of 8,340 ha and are valid until 2031. In addition to the mining licences,
GEMCO is the leaseholder for special purpose leases that provide rights for the provision of township, infrastructure services and port facilities.
GEMCO holds two exploration leases on Groote Eylandt that are the subject of an ongoing resource extension study (ELR 28161-2). These
cover an area of 4,414 ha and are valid until November 2015. South32 intends to renew these leases and potentially seek conversion to a mining
lease.
Resources As at 30 June 2014, in 100 per cent terms, GEMCO’s Measured, Indicated and Inferred Mineral Resources comprised a ROM component which
and reserves totalled 175 Mt at 44.8 per cent manganese product and a yield of 48 per cent and a series of sand tailings stockpiles of 15 Mt at 20.7 per cent
manganese head grade (being the average grade of ore delivered to a process for mineral extraction). GEMCO’s Proved and Probable Ore
Reserves were 94 Mt (100 per cent basis) at 44.6 per cent manganese and a yield of 58 per cent.(a)
Mining and processing GEMCO is an open-cut strip mining operation, which includes crushing, screening, washing and dense media separation. It produces lump and
fines products with a 4.8 Mtpa capacity (100 per cent basis).
Power to the site is provided by on-site diesel generation.
Logistics and Ore is transported 16 km from the concentrator by road train to GEMCO’s port at Milner Bay where it is exported.
marketing
Approximately 90 per cent of ore product from GEMCO is sold directly to export markets, with the remaining ore sold to the TEMCO smelter.
Projects and The US$139 million Premium Concentrate Project (PC02) (US$83.4 million South32’s share), approved in August 2014, is in the early stage of
developments execution. PC02 is expected to complete by the end of FY2016 and ramp up to full production of 0.5 Mtpa in FY2017, thereby increasing
GEMCO’s capacity from 4.8 Mtpa to 5.3 Mtpa (100 per cent basis). This capacity expansion will be achieved by the construction of a
standalone processing facility near the existing concentrator to produce a premium concentrate product for export sale. The expansion also
involves an update to port infrastructure to handle the blending of premium concentrate with existing ore fines products.
South32 is in the early stages of assessing projects which have the potential to improve efficiency at GEMCO’s operations and is exploring
areas which have the potential to extend the GEMCO mine life.

(a) Mineral Resources and Ore Reserves above are based on the information in Section 7.2.

(3) TEMCO description


The location of TEMCO’s operations is shown below:

Diagram 7.9: Location of TEMCO’s operations

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An overview of TEMCO is provided below:

Table 7.21: TEMCO overview

Location TEMCO is located at Bell Bay, Tasmania, Australia on an industrial estate approximately 4 km from George Town.
Ownership TEMCO is wholly-owned by GEMCO, which is itself owned in a joint venture in which South32 will hold 60 per cent and Anglo American Plc
holds 40 per cent.
Operatorship Operated by South32.
Workforce TEMCO had on average approximately 300 FTE employees and contractors in FY2014.
History TEMCO’s operations were established by BHP in 1962 at the Bell Bay site, where it had access to a sheltered deep water port and cheap
hydroelectric power.
TEMCO’s first furnace was commissioned in 1962. In 1966, TEMCO began to process GEMCO manganese ore. Three additional furnaces
were commissioned in 1966 (Furnace No. 2), 1976 (Furnace No. 5) and 1977 (Furnace No. 3).
Operations have been subject to a number of improvements since the 1970s. More recently, in 2001, TEMCO installed its first high
conductivity freeze lining at Furnace No. 1, which enabled the furnace to operate at higher loads. Freeze lining has been installed during
subsequent rebuilds of the other furnaces, with Furnace No. 5 being the last one to be converted to freeze lining in September 2009.
Title, leases or options The current ferroalloy facility is located on three freehold titles held by TEMCO having a total stated area of 104.1 ha. TEMCO also leases
portions of the nearby wharf and foreshore areas. Under these arrangements, TEMCO has priority use of No. 3 Wharf and holds a lease over an
area for haulage, access and training facilities, which expires in 2029.
Processing TEMCO produces HCFeMn (150 ktpa capacity) and SiMn (120 ktpa capacity). Sinter production (325 ktpa capacity) is predominantly
consumed for internal alloy production, with any excess sold.
Smelting of manganese ore and manganese sinter to produce SiMn and HCFeMn is conducted within refractory lined circular submerged arc
furnaces. TEMCO operates a duplex process which means that the FeMn slag produced contains approximately 32 per cent manganese. The
slag is then used as a primary feed in SiMn production.
The majority of TEMCO’s power needs are met by hydroelectric power.
The remainder of TEMCO’s power needs are generated on-site.
Logistics and TEMCO has priority use of a berth at the Bell Bay wharf, under a long-term lease, for its shipping requirements. Raw materials that are not
marketing sourced locally in Tasmania are shipped to TEMCO via the Bell Bay wharf. The same wharf is used by TEMCO to ship its manganese alloy
products to customers.
TEMCO is a party to marketing contracts in Australia and New Zealand. TEMCO distributes its products through a distribution agreement with
Samancor AG (a manganese joint venture entity owned by South32 (60 per cent) and Anglo American Plc (40 per cent)). Currently, alloy
production is exported to more than 28 customers in 12 countries. Approximately 10 per cent of TEMCO’s products are supplied directly to
steel customers in Australia and New Zealand.
Section 2.1(c) sets out details of the petition filed with the United States Department of Commerce and the United States International Trade
Commission in February 2015, requesting the imposition of antidumping duties on silicomanganese imports of Australian origin (of which
TEMCO is the only producer).
Overview of TEMCO sources power (a critical aspect of its operations) from Hydro Tasmania. TEMCO has recently extended its current agreement with
significant contracts Hydro Tasmania until 2024. Pricing is fully variable based on load consumption.
Projects and No projects that would be material to South32 are currently being considered at TEMCO.
developments

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(4) Summary historical financial and operating information


A summary of operating metrics and financial information for the integrated operations is set out below:

Table 7.22: Australia Manganese operating metrics

6 months 12 months
ended December ended June
100 per cent terms H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Manganese ore production (kt) 2,499 2,438 4,776 5,027 4,306
Manganese alloy production (kt) 139 123 269 234 198
Manganese ore sales (kt)(a) 2,432 2,523 5,063 4,578 4,428
External customers 2,159 2,332 4,591 4,100 4,046
TEMCO 273 191 472 478 382
Manganese alloy sales (kt)(a) 129 117 276 227 229
Realised manganese ore sales price (US$/t)(a) 185 231 219 227 211
Realised manganese alloy sales price (US$/t)(a) 1,140 983 1,025 1,282 1,384
Ore operating unit cost (US$/t produced) 103 135 130 119 140
Alloy operating unit cost (US$/t produced)(b) 906 967 974 1,000 1,601

(a) Volumes and prices do not include any third party trading that may be undertaken independently of the equity production. Realised sales price is calculated as sales
revenue divided by sales volume.
(b) Includes the cost of the manganese ore acquired by TEMCO from GEMCO at market prices.

Table 7.23: Australia Manganese financial summary

6 months 12 months
ended December ended June
100 per cent terms
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue(a) 566 677 1,308 1,257 1,204
Manganese Ore 451 584 1,107 1,040 936
Manganese Alloy 147 115 283 291 317
Intra-segment elimination (32) (22) (82) (74) (49)
Underlying EBITDA 215 252 505 499 335
Manganese Ore 194 256 484 442 335
Manganese Alloy 21 (4) 21 57 —
Underlying EBIT 162 216 414 436 282
Manganese Ore 147 225 404 392 293
Manganese Alloy 15 (9) 10 44 (11)
Net operating assets 890 887 825 846 621
Manganese Ore 750 731 697 702 451
Manganese Alloy 140 156 128 144 170
Minor and maintenance capital expenditure 49 25 76 135 126
Major projects capital expenditure 8 33 32 136 87
Exploration expenditure 3 3 5 4 —
Exploration expensed 3 3 5 4 —

(a) As per accounting policies, revenues referring to sales from GEMCO to TEMCO are eliminated as part of the consolidation.
During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 20 per cent, 13 per cent and 37 per cent of Australia
Manganese’s operating cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

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(h) South Africa Manganese


(1) Overview
South Africa Manganese comprises Hotazel Mines owned by Hotazel Manganese Mines Proprietary Ltd (Hotazel) and Metalloys. South32 has an effective 44.4 per
cent ownership of the Hotazel Mines, and Metalloys is 60 per cent owned and operated by South32.
South32 operates the Mamatwan open-cut mine and the Wessels underground mine of Hotazel Mines. In FY2014, the total manganese ore production was 3,526 kt
(100 per cent basis). Wessels has a reserve life of 46 years and Mamatwan has a reserve life of 18 years.
The Metalloys operation is located approximately 50 km south of Johannesburg, South Africa. Metalloys is one of the largest manganese alloy producers in the world
and produces HCFeMn and MCFeMn. FY2014 production of manganese alloy was 377 kt.
South Africa Manganese also holds an indirect interest in United Manganese of Kalahari mine, through a 38 per cent share of Majestic Silver Trading (Pty) Ltd.
The location of Hotazel Mines and Metalloys operations is shown below:

Diagram 7.10: Location of Hotazel Mines and Metalloys’ operations

(2) Hotazel Mines description


An overview of Hotazel Mines is set out below:

Table 7.24: Hotazel Mines overview

Location Hotazel Mines is located in the Northern Cape province of South Africa near the town of Kuruman, approximately 600 km from Johannesburg.
Ownership South32 holds a 60 per cent interest in Samancor Holdings (Pty) Ltd (Samancor) and Anglo American Plc holds the remaining 40 per cent.
Samancor indirectly owns 74 per cent of Hotazel, giving South32 an ownership interest of 44.4 per cent. The remaining 26 per cent of Hotazel
is owned by the following BBBEE entities as a result of transactions entered into between 2007 and 2009 (some of which were funded by
vendor loans):
• Ntsimbintle Mining (Pty) Ltd (9 per cent);
• Iziko Mining (Pty) Ltd (5 per cent);
• NCAB Resources (Pty) Ltd (7 per cent);
• The HMM Education Trust (5 per cent).
For accounting purposes, South32 will report a 54.6 per cent effective interest until the vendor loans are repaid.
Operatorship Operated by South32.
Workforce Hotazel had on average approximately 2,100 FTE employees and contractors in FY2014.
History Samancor was established in 1926 and was listed on the JSE a year later as SA Manganese Ltd.
Exploration started in the Kalahari Manganese Field in the 1950s. Mamatwan commenced with production during 1964 and Wessels during
1973.
In 1975, SA Manganese Ltd merged with Amcor Ltd, giving rise to the present name. Samancor was subsequently acquired by a 60:40 joint
venture between Billiton and Anglo American Plc and de-listed in 1998.

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Title, leases or options Hotazel is the holder of two mining licences (Mamatwan and Wessels) and one prospecting right (Hotazel York), namely the:
• Mamatwan mining right (Right No. 04/2006) covers an area of 1,103 ha and is valid until 5 October 2035;
• Wessels mining right (Right No. 03/2006) covers an area of 1,069 ha and is valid until 5 October 2035;
• Hotazel York prospecting right, which covers 146 ha, was renewed on 17 July 2014 and is valid for another three years in line with the
Mineral and Petroleum Resources Development Act 2002 (South Africa). Upon completion of the prospecting work and the necessary
mining studies, an application for a mining right can be lodged should positive decision be made to do so.
Resources As at 30 June 2014, in 100 per cent terms, Mamatwan‘s Measured, Indicated and Inferred Resource totalled 110 Mt at 35.1 per cent manganese
and reserves content. Mamatwan’s Proved and Probable Reserves were 64 Mt at 37.3 per cent manganese content.
Wessels’ Measured, Indicated and Inferred Resource totalled 140 Mt at 42.4 per cent manganese content (100 per cent basis). Wessels’ Proved
and Probable Reserves were 69 Mt at 42.2 per cent manganese content (100 per cent basis).(a)
Mining and processing Approximately 75 per cent of the ore processed at the Mamatwan and Wessels mines results in export saleable product. The remainder of the
ore is converted to FeMn alloy at the Metalloys plant.
Mamatwan is an open-cut mining operation with a capacity of approximately 3.5 Mtpa ROM (100 per cent basis). Mined ore is processed into a
saleable product through a crushing and wet screening operation, with some ore undergoing further processing by dense media separation and
sintering. During beneficiation, the average grade of ore is increased from approximately 37 per cent Mn to approximately 46 per cent Mn.
Wessels is an underground bord and pillar operation with a current capacity of approximately 1.2 Mtpa of ROM production (100 per cent basis).
Primary crushing of ore takes place underground, while secondary crushing forms part of the surface operations. ROM ore is washed and
screened on the surface to produce various quality products.
Power to Mamatwan and Wessels is provided by the South Africa national power supplier, Eskom.
Logistics and The Hotazel Mine’s ore is distributed to domestic customers by rail and road. Ore for the export market is transported to three ports where it is
marketing shipped predominantly to Asia and Europe. These ports are:
• Port Elizabeth, which is operated by Transnet operated port and is located approximately 1,000 km from the Hotazel Mines, which handles
products from both mines;
• Durban’s port, which is privately operated by Bulk Connections, a business unit of the Bidvest Group, and is located approximately 1,200
km from the Hotazel Mines;
• Saldanha Multi-Purpose Terminal, which is a Transnet operated port and is located approximately 900 km from the Hotazel Mines.
Rail and port capacity is constrained and given current rail constraints, a portion of ore is currently transported via road to Durban.
Transnet has approved an expansion for ore export via the port of Coega, which will create additional capacity of 16 Mtpa for bulk ore exports
by 2019 for the manganese mining sector. This expansion is expected to be underpinned by long-term take or pay contracts.
The risk associated with South Africa Manganese failing to obtain adequate allocation of rail capacity in the future is set out in Section 2.2(b).
Overview of The Transnet Manganese Export Capacity Allocation (MECA) contract is a take or pay rail contract that provides rail and port services through
significant contracts Port Elizabeth. Transnet is in the process of finalising new export capacity allocations for the next five years (MECA2), which may provide
additional export options. On 30 September 2014, notification was received from Transnet that the allocation under MECA2 would be 1.45
Mtpa, which is sufficient for South32’s current requirements. The MECA2 contract is expected to be concluded in the second half of FY2015.

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Projects and The central block development project at Wessels is being progressed in two phases.
developments
The first phase of the project was commissioned in December 2013 at a cost of US$92 million (100 per cent basis) and comprised the
construction of the ventilation shaft and development of the associated underground ventilation network.
The second phase of the project will complete infrastructure required to expand the mine to 1.5 Mtpa ROM (100 per cent basis) and
comprises the development of a ROM infrastructure handling system for the central block, the development and equipping of underground
workshops, including materials handling design, procurement and installation. The project is currently in execution and the spend for the
half year ended 31 December 2014 was US$7.5 million (total approved investment of approximately US$31 million on a 100 per cent
basis).

(a) Mineral Resources and Ore Reserves above are based on the information in Section 7.2.

(3) Metalloys description


An overview of Metalloys is set out below:

Table 7.25: Metalloys overview

Location The Metalloys plant is located in the Gauteng province of South Africa, near the town of Meyerton. It is approximately 50 km south of
Johannesburg.
Ownership South32 holds a 60 per cent interest in Samancor and Anglo American Plc holds the remaining 40 per cent.
Samancor owns 100 per cent of Metalloys. South32 therefore has an effective interest of 60 per cent in Metalloys.
Operatorship Operated by South32.
Workforce Metalloys had on average approximately 1,550 FTE employees and contractors in FY2014. This includes 138 FTE employees providing
support to both the Hotazel Mines and Metalloys.
History Samancor’s corporate history is set out in Section 7.1(h)(2).
The Metalloys smelter was established in 1951 with the construction of seven small furnaces at the South plant complex to produce SiMn.
Subsequent to this, two 75 MVA furnaces at North plant and an 81 MVA furnace at West plant were built to produce HCFeMn. In 1997, an
oxygen blown converter was built at West plant which can further process HCFeMn into MCFeMn. In 2013, an additional 81 MVA furnace was
commissioned to replace the small energy intensive SiMn furnaces which were decommissioned.
Title, leases or options Samancor is the owner of the land on which the Metalloys smelter operates, which is situated on the farm Kookfontein 545, IQ registration
division, Gauteng Province.
Mining and Metalloys is one of the largest FeMn alloy producers in the world and currently operates four electric arc furnaces with the capacity to produce
Processing in excess of 450 ktpa HCFeMn. A portion of this HCFeMn can be further processed to produce up to 116 ktpa MCFeMn. Key inputs into the
alloying process include approximately 1 Mtpa of manganese ore from the Hotazel Mines, 220 kt of reductants, 70 kt of fluxes and electricity
supplied by Eskom. Approximately 20 MW to 30 MW of the electricity demand is generated using furnace off-gasses.
Logistics and Metalloys exports most of its production via two ports in South Africa: Richards Bay Port, which handles about 80 per cent of Metalloys export
marketing tonnages, and Durban port, which handles the remaining tonnage. Alloys are transported to port by road and rail. Metalloys exports alloys to
customers located predominantly in the United States, Europe and Asia. Alloys are distributed to domestic customers by road.
Overview of Samancor entered into an electricity supply agreement with Eskom in 2013. The pricing is based on the pricing for large industrial electricity
significant contracts customers in South Africa.
Projects and No projects that would be material to South32 are currently being considered at Metalloys.
developments

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(4) Summary historical financial and operating information


A summary of operating metrics and financial information for the integrated operations is set out below:

Table 7.26: South Africa Manganese operating metrics

6 months 12 months
ended December ended June
100 per cent terms H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Manganese ore production (kt) 2,056 1,808 3,526 3,490 3,625
Manganese alloy production (kt) 233 180 377 374 404
Manganese ore sales (kt)(a) 1,982 1,634 3,480 3,491 3,451
External customers 1,478 1,240 2,668 2,771 2,717
Metalloys 504 394 812 720 734
Manganese alloy sales (kt)(a) 224 175 400 385 459
Realised manganese ore sales price (US$/t)(a) 117 139 131 154 139
Realised manganese alloy sales price (US$/t)(a) 911 943 990 1,044 1,190
Ore operating unit cost (US$/t produced) 79 83 82 121 139
Alloy operating unit cost (US$/t produced)(b) 901 1,228 1,175 1,083 1,334

(a) Volumes and prices do not include any third party trading that may be undertaken independently of the equity production. Realised sales price is calculated as sales
revenue divided by sales volume.
(b) Includes the cost of the manganese ore acquired by Metalloys from Hotazel Mines at market prices.

Table 7.27: South Africa Manganese financial summary

6 months 12 months
ended December ended June
100 per cent terms
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue(a) 386 350 788 856 932
Manganese Ore 232 227 456 536 478
Manganese Alloy 204 165 396 402 546
Intra-segment elimination (50) (42) (64) (82) (92)
Underlying EBITDA 63 21 120 111 (18)
Manganese Ore 69 77 167 114 (25)
Manganese Alloy (6) (56) (47) (3) 7
Underlying EBIT 26 (9) 48 58 (51)
Manganese Ore 43 58 118 78 (61)
Manganese Alloy (17) (67) (70) (20) 10
Net operating assets 802 813 790 845 786
Manganese Ore 454 551 557 526 518
Manganese Alloy 348 262 233 319 268
Minor and maintenance capital expenditure 33 21 11 58 63
Major projects capital expenditure 4 11 59 46 68
Exploration expenditure 1 — — — —
Exploration expensed 1 — — — —

(a) As per accounting policies, revenues referring to sales from Hotazel Mines to Metalloys are eliminated as part of the consolidation.
During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 42 per cent, 17 per cent and 31 per cent of South Africa
Manganese’s operating cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

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(i) Cerro Matoso


(1) Overview
South32’s Cerro Matoso open-cut mine is one of the largest nickel lateritic operations in the world, and the smelter produces high-purity, low-carbon ferronickel
granules. Cerro Matoso is operated by South32 and its FY2014 production was 44 kt of nickel in ferronickel form. Cerro Matoso has a reserve life of 15 years.
The location of Cerro Matoso’s operations is shown below:

Diagram 7.11: Location of Cerro Matoso’s operations

An overview of Cerro Matoso is provided below:

Table 7.28: Cerro Matoso overview

Location Cerro Matoso is located 25 km southwest of Montelibano, Córdoba, in northern Colombia.


Ownership Cerro Matoso is 99.94 per cent owned by South32 and 0.02 per cent owned by its current and former employees. The balance of the shares are
currently held in a reserve account following a recent buy-back.
Operatorship Operated by South32.
Workforce Cerro Matoso had on average approximately 2,450 FTE employees and contractors in FY2014.
The current labour collective agreement with the union is valid until 31 December 2015. South32 intends to engage with the relevant employees
on the renewal or replacement of this agreement.
History Cerro Matoso commenced mining in 1980 under the ownership of Billiton Plc and Instituto de Fomento Industrial, a Colombian Government
company.
The ferronickel smelter was commissioned in 1982 with an ore processing capacity of approximately 1.4 Mdmt per annum (100 per cent basis)
and has since undergone an expansion that was completed in 2001, which doubled the smelter’s ore processing capacity to 2.8 Mdmt per annum
(100 per cent basis). Significant maintenance was undertaken in 2011 to rebuild Furnace 01.
In 1989, Billiton Plc increased its ownership in Cerro Matoso to 53 per cent. Following the merger between Billiton Plc and BHP Limited,
further increases in BHP Billiton’s ownership of Cerro Matoso took place in 2007 and 2014, with the company’s interest rising to 99.94 per
cent.

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Title, leases or options Cerro Matoso’s mining licence 051-96M covers an area of 52,850 ha. This licence is valid until 2029 (686 ha of mining area is in the
exploitation stage, with the balance currently in the exploration stage until August 2020, after which the economically exploitable areas will
pass to the exploitation stage), and includes a conditional extension to 2044 if certain ore processing capacity expansions and exploration
commitments are met (including obtaining the associated environmental approvals). Under the terms pursuant to which the mining licence is
granted, a 12 per cent royalty is payable, together with an additional one per cent contribution that applied from October 2012. The extension of
the contract term to 2044 is conditional on Cerro Matoso increasing processing capacity by 50 per cent by 2022. Section 2.1(f) sets out certain
disputes that are currently on foot in respect of the mining licence held by Cerro Matoso and also in respect of the privatisation of Cerro
Matoso.
South32 may, in some circumstances, be able to rely (in relation to 52.37 per cent of its indirect interest in Cerro Matoso) on an investment
protection agreement (Cerro Matoso IPA) in order to mitigate the effect of adverse claims impacting on its mining licence. The Cerro Matoso
IPA was entered into between (i) the Republic of Colombia, and (ii) BHP Billiton (BVI) Limited and Conicol (BVI) Limited (together the BHP
Billiton IPA Parties) on 13 November 1996. It includes provisions to protect the interests held in Contract 051-96M by CMSA, and the BHP
Billiton IPA Parties’ interest in CMSA, against breaches or violation of law (including rules of international law applicable in Colombia) by the
Republic of Colombia. The protections are limited to 52.37 per cent of South32’s indirect interest as the other 47.62 per cent indirect interest
was acquired after the execution of the Cerro Matoso IPA. Under the Cerro Matoso IPA, if a dispute resolution procedure cannot be agreed
between the parties, disputes are subject to international arbitration. The Cerro Matoso IPA remains in force during the life of Contract 051-096,
including any amendment to Contract 051-96M.
Resources As at 30 June 2014, in 100 per cent terms, Cerro Matoso’s Measured, Indicated and Inferred Mineral Resources comprised 289 Mt of laterite
and reserves ores (at 0.9 per cent contained nickel), 51 Mt of stockpile material (at 1.1 per cent contained nickel) and 17 Mt of slag stockpile in metal nickel
recovery process (at 0.2 per cent contained nickel). Cerro Matoso’s Proved and Probable Ore Reserves were 24 Mt of laterite ores (at 1.1 per
cent contained nickel) and 24 Mt of stockpile material (at 1.3 per cent contained nickel).(a)
Mining and processing Cerro Matoso is a truck and shovel open-cut operation. Ore mined is blended with ore from stockpiles before it is passed through a two-stage
crushing sequence.
After crushing, the ore is mixed and homogenised before it is partially dried in two rotary driers. An upgrading process is then undertaken
whereby lower nickel grade is removed.
After the upgrading process, the dried ore is then blended with a reductant agent (locally bought coal) and calcined in two rotary kilns.
Calcined ore is then transferred to two 75 MW electric furnaces where ferronickel is tapped at around 1,460° C. The crude metal is transported
to the refinery where impurities are removed. The refined metal is granulated and packed.
Cerro Matoso has a water management system which allows it to recycle 95 per cent of the water used in operations. The remaining 5 per cent
water loss (due mainly to evaporation) is restored with fresh water from rainfall in operational areas and from the Uré River, in accordance with
an environmental permit from the environmental authority.
Logistics and Ferronickel is transported approximately 260 km by road to the Port of Cartagena, where it is shipped to customers, who are mainly located in
marketing Asia, North America and Europe.
Overview of Cerro Matoso’s electricity is sourced under contracts that are in place until 2018.
significant contracts
The supply of gas to Cerro Matoso is currently contracted until 2021. This contract covers the volume of gas, but the price of gas is set by the
Colombian Government each year. Gas is transported to the operation through Cerro Matoso’s gas pipeline, which covers a distance of
approximately 80 km.
Projects and The Mine Expansion Project is currently under consideration by Cerro Matoso. This project is designed to mitigate Cerro Matoso’s nickel grade
developments decline by increasing the nickel grade of crusher feed during the period FY2018 to FY2022. The progress of this project remains subject to
favourable market conditions and Cerro Matoso obtaining the requisite project approvals (including environmental approvals) and consultation
with nearby communities. Any delay in obtaining these approvals may result in a delay to the date that the project is expected to commence and
if the approvals are not obtained the project will not proceed.
There are options available to South32 to extend operations beyond 2029, subject to regulatory approval and market conditions.

(a) Mineral Resources and Ore Reserves above are based on the information in Section 7.2.

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(2) Summary historical financial and operating information


A summary of operating metrics and financial information for the integrated operations is set out below:

Table 7.29: Cerro Matoso operating metrics

6 months 12 months
ended December ended June
South32’s share H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Ore mined (kwmt) 3,339 4,386 8,490 9,015 9,065
Ore processed (kdmt) 1,335 1,347 2,493 2,649 2,541
Ore grade processed (per cent, Ni) 1.8 2.0 1.9 2.0 2.1
Payable nickel production (kt) 21 24 44 51 49
Payable nickel sales (kt) 21 25 45 52 48
Realised nickel sales price (US$/t)(a) 16,190 12,600 13,222 15,442 18,250
Operating unit cost (US$/t processed) 170 202 204 215 181

(a) Inclusive of by-products. Realised sales price is calculated as sales revenue divided by sales volume.

Table 7.30: Cerro Matoso financial summary

6 months 12 months
ended December ended June
South32’s share
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue 340 315 595 803 876
Underlying EBITDA 113 43 87 234 417
Underlying EBIT 86 1 (1) 155 337
Net operating assets 854 937 860 990 1,003
Minor and maintenance capital expenditure 18 34 36 43 43
Major projects capital expenditure — 1 20 7 62
Exploration expenditure 5 4 8 10 13
Exploration expensed 1 2 2 1 2

During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 23 per cent, 33 per cent and 35 per cent of Cerro Matoso’s
operating cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

(j) Cannington
(1) Overview
Cannington is 100 per cent owned and operated by South32. The Cannington mine is located in northwest Queensland, Australia. Operations include an underground
mine and concentrator located approximately 200 km southeast of Mount Isa, a rail loading facility located in Cloncurry and a port located at Townsville.
The underground mine feeds the concentrator that extracts silver, lead and zinc concentrates from sulphide ore before the concentrate is trucked to Cloncurry and then
railed to Townsville.
Since commissioning in 1997, ore production has increased from 1.5 Mtpa at commissioning to 3.2 Mtpa in FY2014. In FY2014, Cannington produced concentrates
containing approximately 25.2 Moz of silver, 187 kt of lead and 58 kt of zinc. Cannington has a reserve life of nine years, based on the current mine plan.

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The location of Cannington’s operations is shown below:

Diagram 7.12: Location of Cannington’s operations

An overview of Cannington is provided below:

Table 7.31: Cannington overview

Location The Cannington mine and concentrator are located approximately 200 km southeast of Mount Isa, Queensland, Australia.
The Yurbi Rail Load-out facility is located at Cloncurry, approximately 180 km by road from the Cannington mine.
Cannington port facility is located at Townsville.
Ownership 100 per cent owned by South32.
Operatorship Operated by South32.
Workforce Cannington had on average approximately 1,150 FTE employees and contractors in FY2014.
History The Cannington silver, lead and zinc mine was discovered by BHP Minerals in 1990. Development of an underground mine commenced in
1996. Construction of mine infrastructure and processing facilities was completed in 1997 and the mine commissioned in the same year.
Title, leases or options Cannington holds mining lease ML90059, expiring in 2029, as well as borefield lease ML90060, expiring in 2030 and the Yurbi Rail Load-out
lease ML90077, expiring in 2030. These leases cover an area of 8,651 ha.
Cannington also maintains Permitted Use Lease E 50309781 and Water Management Lease C 50309781 at the Port of Townsville for
operational purposes. These are supported by three licences for berth access.
Resources At 30 June 2014, in 100 per cent terms, Cannington’s Measured, Indicated and Inferred Mineral Resource comprised an underground
and reserves component of 60 Mt at 197 g/t silver, 5.57 per cent lead and 3.50 per cent zinc.
Open-cut Measured, Indicated and Inferred Resources as at the same date were 16 Mt at 70 g/t silver, 3.01 per cent lead and 2.06 per cent zinc.
Cannington’s Proved and Probable Ore Reserve of underground sulphide were 21 Mt at 239 g/t silver, 6.35 per cent lead and 3.93 per cent zinc.
(a)

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Mining and processing Cannington produces a silver-rich lead concentrate and a zinc concentrate through a 3.2 Mtpa capacity mill.
Ore is mined by using a sub-level long hole open stoping underground mining method. Ore is transported to the ROM stockpile through a hoist,
with additional production being trucked to the surface.
For mining operations to continue, the void created by the extraction of ore is filled using a paste, which is a combination of cement and
tailings.
Six core processing steps are used to produce the silver, lead and zinc concentrates: crushing, grinding, floatation, leaching, dewatering and
paste fill preparation.
Cannington is supported at the present production rates by the installed infrastructure on site at Yurbi and at the Townsville port facility.
Water is supplied through a series of bores, which draw water from the Great Artesian Basin. EDL operates an on-site power station using a
series of gas turbines, supplemented with diesel generation.
Logistics and Concentrate produced at Cannington is transferred by road trains to the Yurbi Rail Load-out facility, located approximately 180 km from the
marketing mine. Concentrate is transferred to train wagons at the loading facility and transported by rail to the Port of Townsville, approximately 800 km
to the east.
Cannington’s rail transport provider uses fabricated fibreglass lids, securely locked onto each wagon, to prevent any dust emissions during the
journey to Townsville, which takes approximately 24 hours.
Concentrate is exported to markets in South Korea, Japan, Europe and Canada via Cannington’s port facility at the Port of Townsville.
Cannington’s largest customer accounts for close to 35 per cent of Cannington’s revenue.
Overview of Cannington has gas supply arrangements contracted until 31 December 2015. Cannington will need to negotiate a new contract for gas supply
significant contracts after this date, the terms of which may be less favourable than those under existing contractual arrangements.
Projects and As outlined in Section 5.4(e), a number of studies have been completed into the optimal way to extract value from the residual resource at
developments Cannington. South32 management will carefully assess alternatives for effectively exploiting this significant resource.
Any proposed life extension of Cannington would be subject to favourable market conditions, Cannington obtaining the requisite regulatory
approvals and the project meeting South32’s financial criteria.

(a) Mineral Resources and Ore Reserves above are based on the information in Section 7.2.

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(2) Summary historical financial and operating information


A summary of operating metrics and financial information for the Cannington operations is set out below:

Table 7.32: Cannington operating metrics

6 months 12 months
ended December ended June
South32’s share H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Ore mined (kt) 1,748 1,867 3,446 3,146 3,233
Ore processed (kt) 1,669 1,602 3,202 3,145 3,337
Ore grade processed (g/t, Ag) 273 293 296 360 372
Ore grade processed (%, Pb) 7.0% 7.0% 7.1% 7.9% 8.3%
Ore grade processed (%, Zn) 3.5% 3.2% 3.0% 3.0% 2.8%
Payable Silver production (koz) 12,235 12,667 25,161 31,062 34,208
Payable Lead production (kt) 99 94 187 213 239
Payable Zinc production (kt) 37 32 58 56 55
Payable Silver sales (koz) 12,715 14,392 26,160 30,258 33,259
Payable Lead sales (kt) 100 104 189 219 237
Payable Zinc sales (kt) 33 36 62 57 55
Realised Silver sales price (US$/oz)(a) 17 20 20 27 31
Realised Lead sales price (US$/t)(a) 1,950 2,413 2,344 2,030 1,879
Realised Zinc sales price (US$/t)(a) 2,273 1,917 2,000 1,787 1,918
Operating unit cost (US$/t ore processed) 182 208 193 227 209

(a) Realised sales price is calculated as sales revenue divided by sales volume.

Table 7.33: Cannington financial summary

6 months 12 months
ended December ended June
South32’s share
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Sales revenue(a) 486 605 1,079 1,365 1,590
Underlying EBITDA 183 272 460 651 893
Underlying EBIT 154 251 413 611 840
Net operating assets 192 244 234 206 194
Minor and maintenance capital expenditure 14 30 60 39 62
Major projects capital expenditure — — — — 11
Exploration expenditure 3 3 5 8 14
Exploration expensed 3 3 5 8 14

(a) Includes silver, lead and zinc sales revenue.


During FY2014, raw materials and consumables, energy (including fuel) and labour-related costs comprised 13 per cent, seven per cent and 62 per cent of
Cannington’s operating cash costs respectively. The remaining cash costs included freight, secondary taxes and royalties, among other things.

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7.2 SUMMARY OF MINERAL RESOURCES AND ORE RESERVES INFORMATION


(a) Statements of Mineral Resources and Ore Reserves
The statements of Mineral Resources and Ore Reserves (including Coal Resources and Coal Reserves) presented in Section 7.2 have been produced in accordance with the
ASX Listing Rules Chapter 5, the Recommendations of the European Securities and Markets Authority on the consistent implementation of Commission Regulation (EC)
No. 809/2004 implementing the Prospectus Directive and the JORC Code. Mineral Resources and Ore Reserves have been previously reported in the ASX release titled,
2014 BHP Billiton Annual Report – 25 September 2014 available at www.bhpbilliton.com or the ASX website at www.asx.com.au. Commodity prices and exchange rates
used to estimate the economic viability of reserves are based on asset-defined or South32 long-term forecasts. The Ore Reserves tabulated are held within existing, permitted
mining tenements. The South32 Businesses mineral leases are of sufficient duration (or convey a legal right to renew for sufficient duration) to enable all reserves on the
leased properties to be mined in accordance with current production schedules. South32’s Ore Reserves may include areas where some additional approvals remain
outstanding, but where, based on the technical investigations South32 carries out as part of its planning process and South32’s knowledge and experience of the approvals
process, South32 expects that such approvals will be obtained as part of the normal course of business and within the time frames required by the current schedules.

The information in this document relating to Mineral Resources and Ore Reserves is based on information compiled by Competent Persons (as defined in the JORC Code).
All Competent Persons have, at the time of reporting, sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity
they are undertaking to qualify as a Competent Person as defined by the JORC Code. At the date their report was issued, each Competent Person listed in Section 7.2 was a
full-time employee of BHP Billiton, with the exception of R Aglinskas and J P de Melo Franco (MAusIMM, both were employed by Mineração Rio do Norte) and M Bryant
(MAusIMM, employed by Bryant Mining Pty Ltd).

Each Competent Person has given, and has not withdrawn their written consent to the:
• inclusion in this document of the Mineral Resources and Ore Reserves information, which they have provided in relation to their respective deposits as set out in
Section 7.2(b);
• references to their name included herein in the form and context in which they appear and has authorised the inclusion of such information in this document.

Each of the Competent Persons accepts responsibility for the relevant Mineral Resources and Ore Reserves information they have provided as set out in Section 7.2(b). To
the best of the knowledge of each of the Competent Persons (each of whom has taken all reasonable care to ensure that such is the case), the relevant Mineral Resources and
Ore Reserves information they have provided and contained in this document is in accordance with the facts and contains no omissions likely to affect the import of such
information.

All of the Mineral Resources and Ore Reserves figures presented are reported in 100 per cent terms, represent estimates at 30 June 2014 (unless otherwise stated) and do not
take depletion of Mineral Resources and Ore Reserves since that date into account (note that the Independent Competent Persons’ Reports in Annexure 6 contain estimates at
31 December 2014). All tonnes are reported as dry metric tonnes (unless otherwise stated). All tonnes and grade information have been rounded; hence, small differences
may be present in the totals. All of the Mineral Resources information is inclusive of Mineral Resources that have been converted to Ore Reserves (i.e. Mineral Resources are
not additional to Ore Reserves).

South32 will apply governance arrangements and internal controls to verify the estimates and estimation process for Mineral Resources and Ore Reserves. These include:
• standard company procedures for public reporting aligned with current regulatory requirements;
• independent audits of new or materially changed estimates;
• periodic audits of resources and reserves estimates for each asset;
• annual reconciliation performance metrics to validate reserves estimates for operating mines.

Mineral Resources and Ore Reserves are presented in the accompanying tables.

With the exception of Cannington, the Mineral Resources and Ore Reserves figures quoted as at 31 December 2014 in the Independent Competent Persons’ Reports in
Annexure 6, are consistent with the figures quoted in Section 7.2 as at 30 June 2014. The numbers as at 31 December 2014 are the 30 June 2014 figures which have been
depleted for actual and forecast mine production. They are not a re-estimation of the 30 June 2014 Mineral Resources and Ore Reserves estimate and do not include any
additional geological, mining, processing or other information.

A net 5 Mt increase in the 31 December 2014 Cannington resource is reflective of a reassignment of tonnes excluded in the 30 June 2014 statement. The Cannington reported
resource was understated by 7 Mt of Indicated Resource as at 30 June 2014, and 2 Mt of Measured Resource was produced in the half year ended 31 December 2014,
resulting in a net gain of 5 Mt.

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(b) Competent Persons


(1) Worsley Alumina
Mineral Resources
J Binoir, MSc (Exploration Geology), BSc (Hons), MAusIMM is the Senior Resource Geologist at Worsley Alumina and has over 16 years’ mining industry
experience, specialising in geological modelling, geostatistical analysis and resource estimation.
J Engelbrecht, BSc (Geology and Geography), BSc (Hons), MAusIMM, is the Superintendent Resource Geology at Worsley Alumina and has over 16 years’
experience in various commodities, including mineral sands, bauxite, base metals and gold with specialisation in exploration, open-cut and underground mining.
Ore Reserves
G Burnham, MSc (Mineral Exploration), BSc (Geology), MAusIMM is the Superintendent Mine Planning at Worsley Alumina and has over 14 years’ mining industry
experience, including mine, resource and project geology and medium and long-term planning.

(2) MRN Mine


Mineral Resources
R Aglinskas, BSc (Geology), MAusIMM is the Manager Geology employed by Mineração Rio do Norte and has over 14 years of mining industry experience,
including geological data management, pre-feasibility and technical studies, mine geology, short to long-term planning, exploration drilling, resource and reserve
modelling and tenure management.
Ore Reserves
J P de Melo Franco, BSc (Mining), MAusIMM is an independent mining consultant employed by Mineração Rio do Norte with over 33 years of mining industry
experience, specialising in geology, planning, production, beneficiation and construction.

(3) South Africa Energy Coal


Mineral Resources
Khutala
G Gemmell, BSc (Hons), SACNASP is Chief Geologist with BHP Billiton and has over 21 years’ experience in the mining industry, with significant experience in
exploration, geological modelling, resource estimation and reporting and grade control.
Wolvekrans and Middelburg
L Visser, BSc, SACNASP is Superintendent Geologist with BHP Billiton and has over 17 years’ experience in the mining industry, with significant experience in
exploration, geological modelling, resource estimation and reporting, grade control and reconciliation.
Klipspruit
P Maseko, BSc (Hons), Dip in Datamatics, GSSA, SACNASP is Superintendent Geologist with BHP Billiton and has over 29 years’ experience in the coal industry,
with significant experience in exploration, geological modelling, resource estimation and reporting and reconciliation.
Leandra North, Naudesbank, Weltevreden and Leandra South
N Haniff, BSc (Hons Geology), MSc (Environ Geochem), SACNASP is Resource Geologist with BHP Billiton and has more than 18 years’ experience in the mining
industry, with experience in underground mapping, resource estimation and reporting and financial evaluation.
Khutala, Wolvekrans, Middelburg, Klipspruit, Leandra North, Naudesbank, Weltevreden and Leandra South
J H Marais, BSc (Hons), GSSA is Chief Geologist with BHP Billiton and has over 30 years’ experience in the coal industry in both underground and open-cut
operations, with significant experience in exploration, geological modelling, resource estimation and reporting, grade control and reconciliation.
Ore Reserves
Khutala, Wolvekrans, Middelburg and Klipspruit
I Thomson, BEng (Mining), MBA, SAIMM is Manager, Long-term Planning with BHP Billiton and has over 27 years’ experience in the mining industry, with
significant experience in managing open-cut and underground mine operation, estimation and reporting of Ore Reserves, outbound logistics planning, scheduling,
administration and operations and business improvement though six sigma.

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(4) Illawarra Metallurgical Coal


Mineral Resources
Appin, West Cliff, Dendrobium and Cordeaux
H Kaag, BSc (Hons), MAusIMM is a Principal Geologist with BHP Billiton and has over 25 years’ experience in the coal industry both in operations and consulting,
specialising in exploration, geological modelling, resource estimation and reporting, grade control and reconciliation.
Ore Reserves
Appin, West Cliff and Dendrobium
M Rose, BEng (Hons), MAusIMM is a Principal Mining Engineer with BHP Billiton and has 14 years’ experience in medium and long-term mine planning,
scheduling, financial modelling and valuation, design and scoping of ventilation and gas monitoring systems, reconciliation and Ore Reserves reporting.

(5) GEMCO
Mineral Resources
D Hope, BSc (Geology), MAusIMM is the Manager Geological Services at GEMCO and has over 22 years of mining industry experience, specialising in grade
control, exploration, project, mine and resource geology, geological data management, resource modelling and tenure management.
Ore Reserves
M Bryant, MAusIMM is a mining consultant employed by Bryant Mining Pty Ltd and has over 15 years of experience in the mining industry, including mine design
and scheduling, planning system development, optimisation studies, costing and financial evaluations and reserves estimation.

(6) South Africa Manganese


Mineral Resources
Wessels and Mamatwan
E P Ferreira, MSc (Geology), BSc (Hons), SACNASP is the Superintendent Integrated Mine Planning Geology at Hotazel Mines with over 32 years of mining,
research and lecturing experience, specialising in geological mapping, exploration planning and management, geological data management, budget and capital
projects control and strategic planning.
C Nengovhela, MSc (Geology), BSc (Hons), SACNASP is the Sub Function Lead Resource Geology and Exploration at Hotazel Mines with over 10 years of mining,
research and consulting experience in various commodities, with specialisation in exploration, geological modelling and resource estimation, mine design, resource
range analysis and reconciliation.
Ore Reserves
Wessels and Mamatwan
D Mathebula, BSc (Hons), SAIMM is the Manager Production Planning at Hotazel Mines with over 12 years of experience in underground and open-cut coal and
manganese mining, specialising in short to long-term planning, mine scheduling, reserves estimation and reconciliation.

(7) Cerro Matoso


Mineral Resources
I Espitia, BSc (Hons), MAusIMM, is the Resource Model Superintendent at Cerro Matoso S.A. and has over eight years of experience in the mining industry
including minerals exploration, field mapping, geological data management, geological modelling and resource estimation.
Ore Reserves
F Fuentes, MAusIMM is the Long-Term Mine Planning Superintendent at Cerro Matoso S.A. and has over 17 years of experience in the mining industry, specialising
in reserves estimation, open-cut mine planning, optimisation and design, mine scheduling, mining projects studies and strategic planning.

(8) Cannington
Mineral Resources
B Coutts, BSc (Hons), MAusIMM, SEG (Fellow) is the Manager Planning at Cannington mine and has over 24 years of experience in the mining industry, including
exploration and mine geology, short to long-term planning, production, engineering and infrastructure, logistics and planning and resource planning.
Ore Reserves
M Dowdell, BEng (Mining Engineering), MAusIMM is the Senior Mine Planning Engineer at Cannington mine and has over 13 years multi-commodity mining
industry experience, mainly in underground mines drill and blast designs, development and short to long-term planning.

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ALUMINIUM
Table 7.34: Aluminium Mineral Resources

As at 30 June 2014 (reported in 100 per cent terms)


Measured Resources Indicated Resources Inferred Resources Total Resources
Commodity % % % % % % % % South32’s
Deposit(a) Ore Type Mt A.Al2O3 R.SiO2 Mt A.Al2O3 R.SiO2 Mt A.Al2O3 R.SiO2 Mt A.Al2 O3 R.SiO2 Interest %
Bauxite
Australia
Worsley Alumina Laterite 366 31.1 1.5 355 32.0 2.3 418 31.2 2.6 1,140 31.4 2.2 86
Brazil
MRN Mine(b) MRN Crude 172 — — 43 — — 525 — — 740 — — 14.8
MRN Washed 128 50.0 4.0 32 50.5 4.2 367 50.2 4.2 527 50.2 4.2

Table 7.35: Aluminium Ore Reserves

As at 30 June 2014 (reported in 100 per cent terms)


Proved Ore Reserves Probable Ore Reserves Total Ore Reserves
% % % % % % Reserve Life South32’s
Commodity Deposit(a),(c),(d),(e) Ore Type Mt A.Al2O3 R.SiO2 Mt A.Al2O3 R.SiO2 Mt A.Al2O3 R.SiO2 (years) Interest %
Bauxite
Australia
Worsley Alumina Laterite 274 31.0 1.6 22 30.2 1.7 295 31.0 1.6 17 86
Brazil
MRN Mine(f),(g) MRN Washed 79 49.3 4.6 19 49.8 4.8 98 49.4 4.6 6.1 14.8

(a) Cut-off grades for Mineral Resources and Ore Reserves – Worsley Alumina: variable ranging from (e) Metallurgical recoveries for the operations were:
24–29.5 per cent A.Al2O3, £ 3 per cent R.SiO2 and ³ 1m thickness; MRN Washed ³ 50 per cent
TAl2O3, £ 10 per cent TSiO2, ³ 1m thickness and ³ 30 per cent recovery on a weight per cent Estimated Metallurgical Recovery
basis. Deposit of A.Al2O3
(b) MRN Mine – MRN Washed tonnes and grade represent expected product based on forecast Worsley Alumina (Worsley Alumina refinery) 91%
beneficiated yield. MRN Mine (Alumar refinery) 92%
(c) Ore delivered to process plant.
(d) Approximate drill hole spacings used to classify the reserves were: (f) MRN Mine – MRN Washed tonnes and grade represent expected product based on forecast
beneficiated yield.
Probable Ore
Deposit Proved Ore Reserves Reserves (g) MRN Mine – The MRN reserves are located on mining leases that provide MRN the right to mine.
Worsley Alumina Maximum 80m Maximum 160m Current mining areas have environmental approval to operate. As further operational licences are
obtained, Mineral Resources will be converted to Ore Reserves.
MRN Mine A bauxite intersection grid of Those areas with a bauxite
200m, plus at least 10 intersection grid spacing
samples reached by search of less than 400m and/or a
ellipsoid. Mining and 400m spaced grid with a
metallurgical characterisation 200m offset fill in, plus a
(test pit/bulk sample), plus a minimum of seven
reliable suite of chemical and samples reached by search
size distribution data. ellipsoid, plus a reliable
suite of chemical and size
distribution data.

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COAL
Table 7.36: Coal Resources

As at 30 June 2014 (reported in 100 per cent terms)


Commodity Mining Coal Measured Coal Resources Indicated Coal Resources Inferred Coal Resources Total Coal Resources South32’s
Deposit(a),(b) Method Type Mt % Ash % VM %S Mt % Ash % VM %S Mt % Ash % VM %S Mt % Ash % VM %S Interest %
Illawarra Metallurgical
Coal
Appin UG Met/Th 157 11.2 23.8 0.37 256 12.6 24.2 0.36 289 13.5 23.8 0.36 702 12.7 24.0 0.36 100
West Cliff UG Met/Th 21 12.3 21.3 0.36 21 11.9 20.7 0.34 68 13.9 19.9 0.33 110 13.3 20.3 0.34 100
Dendrobium UG Met/Th 86 29.8 23.7 0.59 91 29.8 23.1 0.58 118 29.4 22.8 0.58 295 29.6 23.2 0.58 100
Cordeaux UG Met/Th 5.2 28.7 21.1 0.58 109 29.1 21.5 0.56 85 29.0 22.1 0.57 199 29.0 21.8 0.57 100

(a) The coal quality for Illawarra Metallurgical Coal is for in situ (b) The cut-off criteria used were: Illawarra Metallurgical Coal no
quality on an air-dried basis. Tonnages are on an in situ seam thickness cut-off because the minimum thickness is
moisture basis. economic.

Table 7.37: Coal Reserves

As at 30 June 2014 (reported in 100 per cent terms)


Proved Probable Total
Coal Coal Coal Proved Marketable Coal Probable Marketable Coal Total Marketable Coal Reserve
Commodity Mining Coal Reserves Reserves Reserves Reserves Reserves Reserves Life South32’s
Deposit(a),(b),(c),(d),(e) Method Type Mt Mt Mt Mt % Ash % VM % S Mt % Ash % VM % S Mt % Ash % VM % S (years) Interest %
Illawarra
Metallurgical
Coal
Appin UG Met/Th 24 133 157 20 8.9 23.5 0.37 112 8.9 24.9 0.36 132 8.9 24.7 0.36 25 100
West Cliff UG Met/Th 5.4 0.4 5.8 3.8 8.9 20.6 0.36 0.3 8.9 20.1 0.36 4.1 8.9 20.6 0.36 2.0 100
Dendrobium UG Met/Th 21 24 45 — — — — — — — — — — — — 8.9 100
UG Met — — — 8.6 9.7 23.8 0.59 9.9 9.7 24.2 0.59 18 9.7 24.0 0.59
UG Th — — — 5.2 23.0 — — 6.3 23.0 — — 12 23.0 — —

(a) Only geophysically logged, fully analysed cored holes with (b) Product recoveries for the operations were:
greater than 95 per cent recovery were used to classify the
reserves. Drill hole spacings vary between seams and geological Product
domains and were determined in conjunction with geostatistical Deposit Recovery
analyses where applicable. The range of maximum spacings Appin 84%
was: West Cliff 71%
Dendrobium 67%
Proved Probable
Coal Coal (c) Total Coal Reserves are at the moisture content when mined (6
Deposit Reserves Reserves per cent Appin, West Cliff; 7 per cent Dendrobium). Total
Appin 700m 1,500m Marketable Coal Reserves (tonnes) are the tonnage of coal
available, at moisture content (9 per cent Appin, and West Cliff;
West Cliff 700m 1,500m 13.5 per cent Dendrobium Met; 7 per cent Dendrobium Th) and
air-dried quality, for sale after the beneficiation of the Total
Dendrobium 700m 1,500m Coal Reserves. Note that where the coal will not be
beneficiated, the tonnes of Total Coal Reserves are the tonnes of
Total Marketable Coal Reserves, with moisture adjustment
where applicable.
(d) The cut-off criteria applied were: Appin, West Cliff,
Dendrobium ³ 1.8m seam thickness.
(e) Coal delivered to wash plant.

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Table 7.38: Coal Resources

As at 30 June 2014 (reported in 100 per cent terms)


Measured Coal Resources Indicated Coal Resources Inferred Coal Resources Total Coal Resources
Commodity Mining Coal % % % kcal/kg % % % kcal/kg % % % kcal/kg % % % kcal/kg South32’s
Deposit (a),(b)
Method Type Mt Ash VM S CV Mt Ash VM S CV Mt Ash VM S CV Mt Ash VM S CV Interest %
South Africa
Khutala OC Th 1,143 31.5 22.3 1.16 4,790 — — — — — — — — — — 1,143 31.5 22.3 1.16 4,790 90
UG Th 188 33.7 20.5 0.88 4,480 — — — — — — — — — — 188 33.7 20.5 0.88 4,480
Klipspruit OC Th 138 27.6 22.4 1.23 5,220 — — — — — 1.1 29.8 21.5 1.28 4,950 139 27.6 22.4 1.23 5,220 90
Wolvekrans OC Th 496 25.9 23.2 1.16 5,600 18 30.0 22.7 1.02 5,100 118 30.2 23.1 1.06 5,100 632 26.8 23.2 1.14 5,490 90
Middelburg OC Th 211 28.0 21.7 1.04 5,410 — — — — — 7.3 24.7 22.1 0.88 5,600 218 27.9 21.7 1.04 5,420 90
Projects
Leandra
North UG Th 210 27.7 23.1 1.30 4,990 194 27.3 23.4 1.24 5,030 103 27.0 23.5 1.23 5,060 507 27.4 23.3 1.26 5,020 90
Naudesbank OC & UG Th 103 25.4 25.4 1.09 5,550 132 24.9 25.5 1.06 5,610 54 25.3 25.2 1.08 5,580 289 25.2 25.4 1.08 5,580 90
Weltevreden OC & UG Th 192 29.2 22.1 1.30 5,150 212 31.1 21.7 1.14 4,970 143 30.6 21.9 1.18 5,050 547 30.3 21.9 1.21 5,050 90
South Africa Miscellaneous
Leandra
South UG Th 10 28.1 20.8 0.93 4,700 132 27.1 22.0 1.02 4,910 938 26.0 22.4 1.00 5,030 1,080 26.2 22.3 1.00 5,010 90
T-Project(c) UG Th — — — — — — — — — — 183 32.2 20.3 0.86 4,500 183 32.2 20.3 0.86 4,500 90
Davel UG Th — — — — — — — — — — 244 23.9 26.4 1.52 5,700 244 23.9 26.4 1.52 5,700 90

(a) Tonnages are reported as in situ, except for South Africa, Projects and South Africa Miscellaneous, Deposit Coal Resources Coal Reserves
where tonnages are reported on an air-dried basis. Qualities are reported on an air-dried in situ Naudesbank varying ³ 0.5m to 0.8m seam thickness, —
basis.
(b) Cut-off criteria: £ 45% ash, ³ 22% dry ash-free VM
Weltevreden ³ 0.8m seam thickness, £ 45% ash —
Deposit Coal Resources Coal Reserves
Leandra South ³ 1.8m seam thickness —
Khutala ³ 1.0m seam thickness for OC, ³ 2.5m ³ 1.0m seam thickness for OC,
seam thickness for UG, £ 45% ash, ³ ³ 3.6m seam thickness for UG T-Project ³ 1.8m seam thickness, ³ 18% VM —
24% dry ash-free VM
Davel ³ 1.2m seam thickness, ³ 18% VM —
Klipspruit ³ 1.0m seam thickness, £ 45% ash, ³ 1.0m seam thickness, varying
³ 24% dry ash-free VM ³ 3,580 kcal/kg to ³ 4,300 kcal/kg, £ (c) T-Project – Divestment is in progress.
45% ash
Wolvekrans ³ 1.0m seam thickness, £ 45% ash, ³ 1.0m seam thickness,
³ 17.9% VM ³ 2,870 kcal/kg CV, £ 45% ash, ³
17.9% VM
Middelburg ³ 1.0m seam thickness, £ 45% ash, ³ 1.0m seam thickness, ³
2,870 kcal/kg CV,
³ 17.9% VM £ 45% ash, ³ 17.9% VM
Leandra North ³ 1.8m seam thickness —

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COAL
Table 7.39: Coal Reserves

As at 30 June 2014 (reported in 100 per cent terms)


Proved Probable
Coal Coal Total Coal Proved Marketable Coal Probable Marketable Coal
Reserves Reserves Reserves Reserves Reserves Total Marketable Coal Reserves Reserve
Commodity Mining Coal % % % kcal/kg % % % kcal/kg % % % kcal/kg Life South32’s
Deposit(a),(b),(c) Method Type Mt Mt Mt Mt Ash VM S CV Mt Ash VM S CV Mt Ash VM S CV (years) Interest %
South Africa
Khutala OC Th 1.4 — 1.4 1.3 35.7 21.1 1.15 4,640 — — — — — 1.3 35.7 21.1 1.15 4,640 90
UG Th 36 — 36 33 33.6 20.3 0.76 4,440 — — — — — 33 33.6 20.3 0.76 4,440 5.8
Wolvekrans OC Th 389 17 406 273 21.8 23.4 0.47 6,010 12 22.5 23.7 0.45 5,950 285 21.8 23.4 0.46 6,010 21 90
Middelburg OC Th 97 — 97 80 23.2 23.0 0.47 5,890 — — — — — 80 23.2 23.0 0.47 5,890 23 90
Klipspruit OC Th 43 — 43 36 23.0 23.3 0.82 5,800 — — — — — 36 23.0 23.3 0.82 5,800 6.0 90

(a) Tonnages are reported on an air-dried basis. Qualities are reported on an air-dried in situ basis. (c) Product recoveries for the operations were:
(b) Approximate drill hole spacings used to classify the reserves were:
Product
Deposit Proved Coal Reserves Probable Coal Reserves Deposit Recovery
Khutala >8 boreholes per 100 ha 4 to 8 boreholes per 100 ha Khutala 92%
Wolvekrans >8 boreholes per 100 ha 4 to 8 boreholes per 100 ha Wolvekrans 70%
Middelburg >8 boreholes per 100 ha 4 to 8 boreholes per 100 ha Middelburg 82%
Klipspruit >8 boreholes per 100 ha 4 to 8 boreholes per 100 ha Klipspruit 84%

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MANGANESE
Table 7.40: Manganese Mineral Resources

As at 30 June 2014 (reported in 100 per cent terms)


Commodity Measured Resources Indicated Resources Inferred Resources Total Resources South32’s
Deposit(a) Ore Type Mt % Mn % Yield Mt % Mn % Yield Mt % Mn % Yield Mt % Mn % Yield Interest %
Manganese
Australia
GEMCO(b) Sands — — — 13 20.8 — 2.3 20.0 — 15 20.7 — 60
ROM 95 46.1 48 46 43.6 47 34 42.7 49 175 44.8 48

Mt % Mn % Fe Mt % Mn % Fe Mt % Mn % Fe Mt % Mn % Fe
South Africa(c)
Wessels Lower Body-HG 5.8 47.7 12.0 13 48.0 12.2 — — — 19 47.9 12.2 44.4
Lower Body-LG 9.4 42.1 13.4 20 41.8 13.3 — — — 29 41.9 13.3
Upper Body — — — 92 41.4 18.3 — — — 92 41.4 18.3
Total for Wessels 15 44.2 12.9 125 42.2 16.9 — — — 140 42.4 16.4 44.4
Mamatwan M, C, N Zones 19 37.7 4.4 45 37.2 4.5 5.2 37.4 4.7 69 37.4 4.5 44.4
Top Cut (balance
I&O) 9.0 30.5 6.6 20 29.9 6.3 5.6 29.1 6.2 34 29.9 6.4
X Zone 2.4 38.0 4.6 4.6 37.0 4.8 0.3 36.2 5.0 7.3 37.3 4.8
Total for Mamatwan 30 35.6 5.1 70 35.1 5.0 11 33.2 5.5 110 35.1 5.1 44.4

(a) Cut-off grades for Mineral Resources and Ore Reserves — GEMCO: ³ 40 per cent Mn washed (b) GEMCO – Mineral Resource ROM tonnes are stated as in situ, manganese grades are given as per
product and ³ 1m ore thickness for ROM, > 0 per cent Mn in situ for Sands; Wessels: ³ 45 per cent washed ore sample and should be read together with their respective tonnage yields. Mineral
Resource Sands tonnes and manganese grades are reported as in situ. Ore Reserve tonnes are stated
Mn for Lower Body-HG, ³ 37.5 per cent Mn for Lower Body-LG and Upper Body; Mamatwan: ³ as ROM, manganese grades are reported as expected product and should be read together with
35 per cent Mn for M, C, N and X Zones, ³ 28 per cent Mn for Top Cut (balance I&O). their respective tonnage yields.
(c) Wessels and Mamatwan – Tonnes are stated as wet tonnes.

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MANGANESE
Table 7.41: Manganese Ore Reserves

As at 30 June 2014 (reported in 100 per cent terms)


Commodity Proved Ore Reserves Probable Ore Reserves Total Ore Reserves Reserve Life South32’s
Deposit(a),(d),(e),(f) Ore Type Mt % Mn % Yield Mt % Mn % Yield Mt % Mn % Yield (years) Interest %
Manganese
Australia
GEMCO(b) ROM 78 45.0 58 16 42.6 57 94 44.6 58 11 60

Mt % Mn % Fe Mt % Mn % Fe Mt % Mn % Fe
South Africa(c)
Wessels Lower Body-HG 1.2 48.0 12.2 7.2 47.6 12.3 8.4 47.7 12.3 46 44.4
Lower Body-LG 2.2 41.3 11.9 13 41.8 13.2 15 41.7 13.0
Upper Body — — — 46 41.4 18.2 46 41.4 18.2
Total for Wessels 3 43.7 12.0 66 42.2 16.6 69 42.2 16.4 44.4
Mamatwan M, C, N Zones 19 37.6 4.4 41 37.1 4.5 60 37.3 4.5 18 44.4
X Zone 1.6 38.2 4.7 2.4 36.7 4.8 4.0 37.3 4.8
Total for Mamatwan 21 37.7 4.4 43 37.1 4.5 64 37.3 4.5 44.4

(a) Cut-off grades for Mineral Resources and Ore Reserves as for Table 7.40. (e) Metallurgical recoveries for the operations were:
(b) GEMCO – Ore Reserve tonnes are stated as ROM, manganese grades are reported as expected
product and should be read together with their respective tonnage yields. Deposit Metallurgical Recovery
(c) Wessels and Mamatwan – Tonnes are stated as wet tonnes. (d) Approximate drill hole spacings GEMCO See yield in Ore Reserves table
used to classify the reserves were: Wessels 88%
Mamatwan 96%
Deposit Proved Ore Reserves Probable Ore Reserves (f) Ore delivered to process plant.
GEMCO 60m x 120m and 60m x 60m 120m x 120m
Wessels Defined as rim ±30m wide around mined- Defined as all ground beyond 30m
out
areas, supplemented by some
economically
viable remnant blocks within mined-out
areas
Mamatwan 80m x 80m 160m x 160m

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NICKEL
Table 7.42: Nickel Mineral Resources

As at 30 June 2014 (reported in 100 per cent terms)


Measured Resources Indicated Resources Inferred Resources Total Resources South32’s
Commodity Deposit(a) Ore Type Mt % Ni Mt % Ni Mt % Ni Mt % Ni Interest %
Nickel
Colombia
Cerro Matoso Laterite 44 1.2 179 0.9 66 0.8 289 0.9 99.94
SP 51 1.1 — — — — 51 1.1
MNR Ore 17 0.2 — — — — 17 0.2

Table 7.43: Nickel Ore Reserves

As at 30 June 2014 (reported in 100 per cent terms)


Proved Ore Reserves Probable Ore Reserves Total Ore Reserves Reserve Life South32’s
Commodity
Deposit(a),(b),(c),(d) Ore Type Mt % Ni Mt % Ni Mt % Ni (years) Interest %
Nickel
Colombia
Cerro Matoso(e) Laterite 16 1.2 7.7 1.0 24 1.1 15 99.94
SP 24 1.3 — — 24 1.3

(a) Cut-off grades: (c) Metallurgical recoveries for the operations were:
Deposit Deposit Metallurgical Recovery
Cut-off Mineral Cerro Matoso 82% (reserves to metal)
Grades Ore Type Resources Ore Reserves
Cerro Matoso Laterite, SP (d) Ore delivered to process plant.
³ 0.6% Ni ³ 0.7% Ni (e) Cerro Matoso – Environmental licence approval required for the mine expansion project has been
MNR Ore ³ 0.12% Ni — delayed, but is expected to be granted. Approval of both the Environmental and Social Impact
Assessment and Mining Work Program Plan is a consultative process and forms part of the normal
(b) Approximate drill hole spacings used to classify the reserves were: course of business.
Deposit Proved Ore Reserves Probable Ore Reserves
Cerro 35m or less with three drill holes 35m to 100m with three drill holes
Matoso

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SILVER, LEAD AND ZINC


Table 7.44: Mineral Resources

As at 30 June 2014 (reported in 100 per cent terms)


Commodity Measured Resources Indicated Resources Inferred Resources Total Resources South32’s
Deposit(a) Ore Type Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn Interest %
Cannington OC Sulphide 15 70 3.04 2.12 1.2 67 2.64 1.32 — — — — 16 70 3.01 2.06 100
UG Sulphide 42 226 6.18 3.86 11 147 4.51 3.04 6.7 98 3.52 2.00 60 197 5.57 3.50

Table 7.45: Ore Reserves

As at 30 June 2014 (reported in 100 per cent terms)


Reserve
Commodity Proved Ore Reserves Probable Ore Reserves Total Ore Reserves Life South32’s
Deposit(a),(b),(c),(d) Ore Type Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn (years) Interest %
Cannington UG Sulphide 18 239 6.38 3.92 2.7 240 6.15 4.01 21 239 6.35 3.93 9.0 100

(a) Cut-off grades:

Deposit
Cut-off Grades Ore Type Mineral Resources Ore Reserves
Cannington OC Sulphide Net value incorporating material revenue and cost factors and includes metallurgical —
recovery (see footnote (d) in Table 7.45 for averages). Mineralisation at A$45/t
averages 27 g/tAg, 0.85% Pb and 0.90% Zn.
UG Sulphide Net value incorporating material revenue and cost factors and includes metallurgical Net value cut-off incorporating material revenue and cost factors and includes
recovery (see footnote (d) in Table 7.45 for averages). Mineralisation at A$90/t metallurgical recovery (see footnote (d) in Table 7.45 for averages). Mineralisation at
averages 48 g/tAg, 1.66% Pb and 2.15% Zn. A$140/t averages 99 g/tAg, 4.40% Pb and 2.82% Zn.

(b) Approximate drill hole spacings used to classify the reserves were: (c) Ore delivered to process plant.
(d) Metallurgical recoveries for the operations were:
Deposit Proved Ore Reserves Probable Ore Reserves
Cannington 12.5m sectional x 15m vertical 25m sectional x 25m vertical Deposit Metallurgical Recovery
Cannington Ag 87%, Pb 86%, Zn 79%

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7.3 DESCRIPTION OF JOINT VENTURES AND OTHER INTERESTS HELD BY SOUTH32


South32 holds interests in a number of joint ventures and has rights to a number of royalties. An overview of the key joint ventures and South32’s royalties portfolio is set
out below.

(a) Worsley Alumina


South32 holds an 86 per cent interest in the unincorporated Worsley Alumina joint venture operation (Worsley Alumina JV) together with Japan Alumina Associates
(Australia) Pty Ltd (10 per cent) and Sojitz Alumina Pty Ltd (four per cent). These interests are held, and the Worsley Alumina JV is operated, under the terms of the
Worsley JV arrangements (WJVA) comprising of: the Worsley Joint Venture Agreement (as amended), the Worsley Management Agreement (as amended) and the Worsley
Joint Venture Arrangements – Binding Term Sheet.

The Worsley Alumina JV is managed by BHP Billiton Worsley Pty Ltd, the shares in which are held by the joint venturers in the same proportions as their individual
interests in the Worsley Alumina JV. Output from the refinery is distributed to owners in proportion to their individual interest in the Worsley Alumina JV.

The ultimate decision-making body of the Worsley Alumina JV operations is the executive committee, which comprises representatives of each joint venturer, subject to joint
venturers with a less than 10 per cent individual interest not being able to independently exercise a right to vote at the executive committee. Voting in respect of decisions by
the executive committee effectively require a simple majority of individual interests with the exception of certain decisions relating to approval of programs and budgets,
which require approval by one or more joint venturers holding in aggregate a proportionate share of 75 per cent or more, and certain other fundamental matters, which
require unanimous approval.

(b) Mozal Aluminium


South32’s interest in the Mozal S.A. joint venture (Mozal Aluminium) will be held through BHP Billiton Investment 1 B.V. (B Co). The other participants in the joint
venture are Industrial Development Corporation of South Africa Limited (IDC), Mitsubishi Corporation (Mitsubishi) (through its subsidiary, MCA Metals Holding GmbH
(M Co)) and the Government of the Republic of Mozambique. Mozal Aluminium owns the Mozal Aluminium smelter referred to in Section 7.1(c). The shares of Mozal
Aluminium are currently owned by the joint venture partners as follows: B Co (47.1 per cent), M Co (25.0 per cent), IDC (24.0 per cent) and Mozambican Government
(3.9 per cent, in the form of preference shares).
BHP Billiton, IDC and Mitsubishi also established a joint venture company called Aluminium Management Company of Mozambique Proprietary Limited to provide
management, supervision and control services in respect of the operation of the Mozal Aluminium smelter, on behalf of Mozal Aluminium. The shares of Aluminium
Management Company of Mozambique Proprietary Limited are currently owned by the joint venture partners as follows: B Co (49 per cent), M Co (26 per cent) and IDC
(25 per cent).
Pursuant to various long-term off-take agreements, Mozal Aluminium sells 100 per cent of its aluminium products to South32 Marketing, IDC and Mitsubishi Corporation (a
subsidiary of Mitsubishi).
These off-take agreements expire on 31 December 2025. Each of IDC and Mitsubishi Corporation is entitled to the aluminium production of Mozal Aluminium in proportion
to its respective shareholding in Mozal Aluminium. South32’s marketing function (South32 Marketing) currently acquires 51 per cent of the aluminium production of
Mozal Aluminium, which is equal to B Co’s shareholding and the Mozambican Government’s preference shareholding in Mozal Aluminium combined. The Mozambican
Government’s off-take allocation is vested in B Co under the Mozal Aluminium shareholders’ agreement. All cash distributions and dividend declarations are required to
comply with the Mozal Aluminium shareholders’ agreement.

(c) Brazil Aluminium – Alumar and MRN


South32’s Brazilian Aluminium business interests are held through its wholly-owned subsidiary BMSA.

Through an unincorporated Brazilian consortium with Alcoa and Rio Tinto Alcan, BMSA holds a 36 per cent interest in the Alumar refinery and a 40 per cent interest in the
Alumar aluminium smelter referred to in Section 7.1(d). Alcoa (together with its affiliate Alcoa World Alumina Brasil Ltda) owns in aggregate a 54 per cent interest in the
alumina refinery and a 60 per cent interest in the aluminium smelter. Rio Tinto Alcan owns the remaining 10 per cent interest in the alumina refinery. The operations,
together with their integrated port facility, are known as Alumar and are operated by Alcoa. A consortium agreement governs the rights and obligations of the consortium
partners with respect to the management and raw material and capital requirements of the Alumar consortium and their respective interests in the Alumar consortium.
In addition, BMSA owns a 14.8 per cent equity interest in MRN, a Brazilian corporation that operates the MRN Mine, a bauxite mine in the Trombetas region, Pará, Brazil,
referred to in Section 7.1(d). The other shareholders in MRN are Alcoa and affiliates (18.2 per cent), Vale (40 per cent), Rio Tinto Alcan (through Alcan Alumina Ltda)
(12 per cent), Companhia Brasileira de Alumínio S.A. (10 per cent) and Norsk Hydro (through Norsk Hydro Brasil Ltda) (five per cent). BMSA sources from MRN the
bauxite needed to operate its share of the Alumar consortium’s alumina refinery. MRN is independently managed by its board of directors and executive board. The
shareholders of MRN have entered into a shareholders’ agreement to govern their participation in MRN. MRN is partially funded by external debt.

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MRN sells bauxite to its shareholders and their associates under long-term contracts. The price of bauxite under these contracts (the setting of which requires the approval of
MRN’s shareholders) has reference to the recovery of MRN’s costs and other funding obligations and is therefore subject to revision having regard to (among other things)
MRN’s obligations under its external debt arrangements.

(d) Manganese Business Entities


Following implementation of the Demerger, South32 will hold a 60 per cent interest in Samancor Holdings (Pty) Limited, Groote Eylandt Mining Company Pty Ltd and
Samancor AG (together, Manganese Business Entities). The remaining 40 per cent is held by Anglo American plc and its subsidiaries. These interests are held, and the
Manganese Business Entities are operated, under the terms of an Amended and Restated Umbrella Agreement. South32 has agreed to acquire BHP Billiton’s interests in the
Manganese Business Entities. The last of these acquisitions is due to complete on or about 8 May 2015 (the Novation Date), subject to approval of the Demerger Resolution.

The Amended and Restated Umbrella Agreement was entered into on 19 August 2014, amending and restating the original Umbrella Agreement between BHP Billiton and
Anglo American plc. On the Novation Date, South32 will replace BHP Billiton as a party to the Amended and Restated Umbrella Agreement (and the Management
Agreement referred to below).

Under the Amended and Restated Umbrella Agreement, South32 and Anglo American plc will be obliged to conduct their worldwide manganese mining, processing,
marketing and trading activities exclusively through the Manganese Business Entities. The ultimate decision-making body under the Amended and Restated Umbrella
Agreement is the supervisory committee. Certain key decisions require unanimous approval.

From the Novation Date, South32 will be the exclusive manager of the mining operations of the Manganese Business Entities under a Management Agreement and will
provide marketing services in respect of manganese production under Marketing Services Agreements. The Management Agreement contains provision for management
fees.

South32 will have day-to-day conduct of the business subject to matters reserved to the supervisory committee. South32 and Anglo American plc will have equal
representation and voting rights on the supervisory committee.

(e) South32 royalties portfolio


South32 holds the rights to a portfolio of minerals royalties receivable that is diversified by commodity and country of origin. Royalty income is not currently being received
for the majority of the royalties as they relate to projects that are not currently in production.

7.4 SOUTH32 MARKETING


South32 Marketing is responsible for the organisation’s sales and distribution activities. The marketing activities include:
• sale of South32’s commodities and purchase of selected raw material inputs;
• optimising the supply chain for delivery flow of commodities to both internal and external customers;
• working closely with the South32 Businesses to maximise the value from the resource base;
• defining the company’s view of the long-term markets;
• maximising revenue and managing price and credit risk.

Management of South32’s marketing function is based in Singapore, with a regional office in London, and a presence in South Africa and Switzerland. The core activities
described above are supported by the key functional services of governance, compliance and financial performance reporting.

South32’s marketing activities are geared towards:


• identifying marketing and pricing opportunities using knowledge accumulated by South32 across the supply chain and various geographical locations it operates;
• taking advantage of the substantial financial resources and market and commodity knowledge accumulated within South32;
• efficiently managing logistics and handling of commodities from load point to customer.

South32’s involvement as a producer, refiner and marketer of commodities allows it to minimise costs and maximise efficiencies, maximising returns across the supply chain.
A fully integrated marketing function also allows South32 to deliver a differentiated sales proposition to its customers relative to other producers and allows South32 to
optimise its supply chain to meet customer needs.

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7.5 EMPLOYEES
Immediately following the Demerger, South32 will have a workforce totalling approximately 27,000 people globally. As at 31 December 2014, South32 employed
approximately 15,000 FTE employees in the businesses, assets and offices to be managed by South32 and a further approximately 12,000 contractors were engaged by these
operations.

(a) Description of workforce


Given the diverse nature of South32’s operations, the roles and functions of South32’s employees and contractors vary across South32. There are four main categories of
employees as shown below:
Table 7.46: South32 employees by category

Employees by category %
Senior leaders 0.4
Managers 2.0
Supervisory and professionals 4.9
Operators and general support 92.7

Contractors are not shown in the table above, but perform services that would fall within the operators and general support category only.

(b) Employment arrangements


The employment arrangements with respect to employees in South32 Businesses in Australia, South Africa, Colombia, Singapore and Mozambique are set out below.1

(1) Australia
The National Employment Standards underpin the terms and conditions of all Australian employees.
The majority of South32’s Australian employees have terms and conditions of employment governed by an enterprise agreement or a modern award.
Enterprise agreements are agreements between a company and its employees that set out the conditions of employment and are approved by the Fair Work
Commission.
South32 is a party to 24 enterprise agreements which collectively cover approximately 50 per cent of its Australian workforce.
Where an enterprise agreement is in place, it applies instead of a modern award (being industry or occupation based minimum employment standards) and the pay rate
in an enterprise agreement must not be less than the pay rate in the relevant modern award.

(2) South Africa


South32’s South African operations employees have terms and conditions of employment that are governed by the Basic Conditions of Employment Act of South
Africa (BCEA) and their individual contracts of employment. Some of the terms and conditions of employment of some employees are regulated by collective
agreements, which are negotiated with the applicable trade unions. The BCEA is the principal statute giving effect to statutory minimum terms and conditions of
employment. It is, in effect, a default set of conditions of employment, unless the conditions of employment provided for in employment contracts or in collective
agreements are more favourable to employees. The BCEA also establishes mechanisms for the variation of basic conditions through individual agreement, collective
agreements and sectoral agreements.
Collective agreements are written agreements, which vary contracts of employment and cover mainly less experienced employees.

(3) Colombia
All employment matters covering South32 and all businesses in Colombia are governed by the Substantive Labor Code, which regulates matters such as individual
employment agreements, mandatory social benefits, annual leave, supplementary work, days of rest, union organisations and collective bargains; and the Social
Security Regime, which regulates obligations related to affiliation with (and quotations to) the social security system for health, pension and occupational risks.
CMSA and the union of which employees at Cerro Matoso are members entered into a collective bargaining agreement that expires in December 2015. The collective
bargaining agreement covers the majority of employees including all unionised and non-unionised CMSA employees, except for those holding managerial positions.

1 Arrangements with employees in South32 Businesses in other countries have not been set out below given the small number of employees in these locations.

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(4) Singapore
The terms and conditions of employment of the employees in South32’s operations in Singapore will be primarily governed by their respective common law contracts
of employment, including any South32 policies forming part of the contract.
The Singapore Employment Act 1968 prescribes some minimum terms and conditions of employment but the Act has limited application to South32’s employees.

(5) Mozambique
The employees of South32’s operations in Mozambique have terms and conditions of employment that are governed by both the applicable labour law (Project of
Labour Law) and a collective bargaining agreement ‘Mozal Wages Agreement’ executed in 2013 between Mozal Aluminium and the Sintime union.
Most of the key terms and conditions applicable to the employment relationship, including remuneration principles, working hours and other conditions of
employment, are determined by the general labour law and the individual employment contracts entered into between the employer and its employees. The collective
agreement specifies the relationship between the union, as representative of the employees, and South32, and sets guidelines with regard to issues such as the level of
salaries and their negotiation, minimum services commitments, disputes procedures and other general employment issues.
The execution of the individual employment contracts also follows the existing internal guidelines on remuneration, conditions of employment and employee benefits
for Mozal Aluminium employees.

(c) Employee relations


All South32 operations and offices seek to maintain safe and productive workplaces underpinned by employee relations principles and direct employee engagement and
alignment. Employee relations are managed by each operation within a South32-wide governance framework.

South32’s relationships with its employees and its other stakeholders are built on mutual respect. Due to the breadth and geographical diversity of South32, its employees
operate under a range of legislative regimes and its employment arrangements range from collective to individual contracts. South32 recognises the right of its employees to
freely associate and collectively bargain where they choose to do so. Approximately 50 per cent of South32’s total employees are covered by long-term collective
agreements, and labour unions are represented at many of South32’s operations.

South32 engages in direct communication and responds to issues raised by employees and unions, including those related to health and safety matters, remuneration, working
hours and roster arrangements. South32 also works closely with contracting companies and encourages them to ensure their employee relations are governed in a manner
consistent with the South32 approach.

In line with South32’s employee relations approach, South32 believes having employees directly engaged with South32 and aligned with South32’s goals is the most
effective way of ensuring harmonious operations.

South32 leadership believes that relationships with employees across all operations are productive as evidenced by the fact that there was no industrial disruption of greater
than one week, continuously or cumulatively, in FY2014.

(d) South32 employee relations strategy


From the date of the Demerger, South32 intends to adopt an employee relations strategy which will aim to:
• ensure respectful and fair treatment of all employees;
• eliminate negative, disrespectful, disruptive or inefficient behaviours and practices;
• harness the benefits of workplace diversity;
• build a workplace culture that recognises high performance;
• introduce workplace change in a consultative manner;
• provide timely, open, honest communication at all levels;
• empower and train supervisors and managers to provide strong leadership and act as role models;
• maintain fair and responsive dispute resolution procedures that achieve effective resolution of workplace issues.

However, as in any business comprising a large workforce, there is a risk that South32’s operations may be affected by disputes with employees and unions. South32
minimises the risks of such disputes by ensuring South32 management maintains a frequent and open dialogue with employees and their unions. Further information on the
risk of industrial action can be found in Section 2.2(g).

(e) Superannuation
South32 operates a number of pension plans and post-retirement healthcare plans around the world. Some of these plans are defined contribution and some are defined
benefit in nature. For funded plans, assets are held in separate trusts, governed by local regulations and practice.

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7.6 GOVERNMENT REGULATION OVERVIEW


Government regulations touch various aspects of South32’s operations. However, the geographical diversity of South32’s operations reduces the risk that any one set of
government regulations would have a material effect on its business, taken as a whole.

The ability to extract minerals will be fundamental to South32. In most jurisdictions, the rights to undeveloped mineral deposits are owned by the state. In those jurisdictions,
South32 relies upon the rights granted to it by the government that owns the mineral rights. These rights usually take the form of a lease or licence, which gives South32 the
right to access the land and extract the product. The terms of the lease or licence, including the time period for which it is effective, are specific to the laws of the relevant
jurisdiction. Generally, South32 owns the product it extracts, and royalties or similar taxes are payable to the government.

Related to the ability to extract is the ability to process the minerals. Again, South32 relies upon the relevant government to grant the rights necessary to transport and treat
the extracted material in order to ready it for sale.

Underlying South32’s business of extracting and processing natural resources is the ability to explore for those natural resources. Typically, the rights to explore for minerals
are granted to South32 by the government that owns those natural resources that it wishes to explore. Usually, the right to explore carries with it the obligation to spend a
defined amount of money on the exploration or to undertake particular exploration activities.

Governments also impose obligations on South32 in respect of environmental protection, land rehabilitation, occupational health and safety, and rights and interests of
Indigenous peoples with which South32 must comply in order to continue to enjoy the right to conduct its operations within that jurisdiction. These obligations often require
South32 to make substantial expenditures to minimise or remediate the environmental impact of its operations and to ensure the safety of its employees, contractors and
neighbouring communities. Environmental protection, land rehabilitation and occupational health and safety practices in most jurisdictions in which South32 operates are
principally regulated by the government and to a lesser degree, if applicable, by the lease contract with the landowner.

7.7 HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY


(a) Objectives
South32 aims to be a business that lives by its values, is socially and environmentally responsible and provides a better future for South32’s host communities. South32 will
seek to achieve this through leaders and employees who stand for and live the values and implement appropriate systems to ensure safe, predictable and effective operations.
Not only does South32 believe this is essential to maintain its licence to operate, but it considers that this has been and will continue to be one of its competitive advantages.

South32 believes that its strength will come from its workforce diversity and an inclusive workplace culture and environment where employees can meet their professional
and personal development priorities.

South32’s HSEC governance and risk management framework is set out below:

(1) Governance and sustainability


The South32 Board will establish a Sustainability Committee to assist in the oversight of HSEC and sustainability matters. This includes overseeing areas relating to
risk control, compliance with applicable legal and regulatory requirements and with overall HSEC and sustainability performance of South32.

(2) Risk management


In addition to the legal requirements of the countries in which South32 operates, Corporate Standards will outline South32’s approach to managing risks, including
HSEC and sustainability risks. These documents will describe the mandatory minimum performance requirements and accountabilities across South32 and will be the
foundation for developing and implementing risk controls across operations.

South32 will develop Corporate Standards which will also define its commitments to international policies, standards and selected management practices. South32’s
Risk Management Corporate Standard will provide the framework for embedding risk management into business activities, functions and processes.

(3) Commitment to integrity and transparency


South32 is committed to ethical business practices and high levels of governance and transparency in all its dealings. In support of this commitment, South32 intends
to:
• issue an annual sustainability report using the Global Reporting Initiative framework from FY2016;
• report payments of taxes and royalties derived from resource developments on a country-by-country basis, consistent with South32’s support for the Extractive
Industries Transparency Initiative and the importance of transparency of government revenue from the extraction of natural resources in the fight against
corruption.

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(b) Environment
South32 acknowledges the relationship between sustainable natural resource use and conservation and will demonstrate this by minimising its environmental impacts and
contributing to enduring environmental conservation projects.
(1) Climate Change
South32 accepts the findings of the Intergovernmental Panel on Climate Change, in particular, that human activity impacts the climate and that physical effects are
unavoidable. South32 intends to take actions to reduce emissions and support regulations to counter the effects of climate change. South32 recognises:
• the risk that climate change poses to the South32 Business and is committed to reducing its emissions;
• the importance of improving living standards by providing access to affordable, reliable energy, but South32 is transparent about the challenge that this presents
in meeting climate change objectives;
• the role of government as policymakers and will work with industry bodies to support development of effective, long-term policy frameworks.
South32 will continually look for opportunities to improve its energy efficiency with a specific focus on the energy and greenhouse gas emissions-intensive smelting
assets.
Carbon pricing will be a key consideration in all of South32’s current and future investment decisions. Governments globally are considering a variety of legislative
and regulatory options to mitigate greenhouse gas emissions. South32 will engage with relevant governments in order to provide its views and perspective on any
policy and the impacts it may have for South32 given its trade-exposed and energy intensive position.

(2) Biodiversity and land management


South32 will develop land and biodiversity management plans which specify measures to avoid, minimise, rehabilitate and apply compensatory actions as appropriate
to manage the biodiversity and ecosystem impacts of its operations.

(3) Water Resource Management


South32 will seek to ensure effective management of the water resources it shares with its host communities and the environment.
South32 Businesses will be required to assess direct, indirect and cumulative impacts and risks to water resources by understanding the social, cultural, ecological and
economic values of these resources within their area of influence.
Where water is identified as a material risk, South32’s operations will be required to implement projects to improve the management of water resources to focus on
the water challenges specific to the regions in which they operate.

(4) Closure planning


South32 recognises the significant potential risks associated with poorly managed closure activities and seeks to minimise these throughout the life cycle of its
operations. South32 operations will be required to develop and maintain closure plans that address the details of rehabilitation activities for disturbed land,
remediation requirements for contaminated land, and end uses for land and infrastructure. Closure plans will be also required to include community impacts post-
closure. In addition, South32 will require closure plans to be developed as part of its major capital investments to ensure potential closure liabilities are understood
and, where possible, reduced during the design stage. Closure plans will provide the basis for estimating costs and associated accounting for closure and rehabilitation
obligations.

(c) Safety
South32’s aspiration is to ensure that no person at work will be seriously hurt. Work will be well designed, planned, executed, supervised and improved by trained and
competent people. All key processes and equipment will be governed by standards, and compliance to these standards is periodically tested and verified.
South32 will implement a consistent risk management process at its operations that ensures:
• appropriate controls are implemented and effective;
• systems are implemented to identify and effectively manage foreseeable crises and emergencies, ensuring South32’s operations can deal with potential casualties, to
limit harm and to safely return to full function as soon as possible.

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(d) Health
South32’s priority is to ensure that employees and contractors are not exposed to harmful occupational health risks with a primary focus on controlling occupational
exposures at their source. In situations where South32 cannot control the source, a range of measures will be employed, including the provision of personal protective
equipment to safeguard its people.

Health risks faced by South32’s people include fatigue and occupational exposures to noise, manganese, carcinogenic substances, such as silica, diesel exhaust particulate
matter, nickel, sulphuric acid mist, fluorides and coal tar pitch.

South32 will have processes in place to make sure its people are fit for work and all operations have systems in place to minimise the risk of health exposures. The health
risks faced by South32 Businesses are set out in further detail in Section 2.5(a)(1).

(e) Community
South32 will make a positive contribution to the quality of life of the communities, regions and countries where it operates. South32 will work with its local communities to
better understand and manage the impact of its operations and to maximise the opportunities South32 has to help make these communities great places to live and work.

This will be done by:


• Developing stakeholder engagement plans: Stakeholder engagement plans identify the interests and relationships of the stakeholders in the host communities within
which South32 operates. These plans will contain a range of culturally and socially inclusive engagement activities to ensure open communications are maintained.
• Making a positive contribution to society: Wherever South32 operates, it will contribute by:
• paying taxes and royalties to governments, which in turn are used to provide important public services and amenities to their communities;
• providing employment and procurement opportunities to its local communities.
• Recognising Indigenous communities and respecting customary rights: South32 will recognise the traditional rights and values of Indigenous peoples, respect
their cultural heritage and provide opportunities for inclusion and advancement. Many of South32’s operations are located on or near Indigenous lands. South32 will:
• provide cultural awareness and competency training for employees who engage with Indigenous peoples from host communities;
• implement Indigenous engagement programs that are consistent with the ICMM Position Statement on Indigenous Peoples and Mining (which comes into
effect in May 2015).
• Committing to business practices which observe and respect human rights: South32 acknowledges its activities have the potential to impact human rights.
South32 Businesses will be required to complete a human rights impact assessment to ensure potential risks are identified and measures are in place to effectively
manage and mitigate these risks.
Through South32’s commitment to the Voluntary Principles on Security and Human Rights, South32 will seek to protect people and property from risks presented by
security threats.

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8 DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE


Following implementation of the Demerger, South32 will have a Board of Directors and a senior management team with the combined skill and experience to discharge their
respective responsibilities in a publicly listed, global, diversified metals and mining company.

In determining the number of South32 Directors, the workload of the South32 Board and its committees and the skills and experiences necessary to effectively govern
South32 have been taken into account. Directors have been sought who together reflect industry expertise in the mining, refining, smelting and processing areas, as well as
experience in the five countries in which South32 has assets and the jurisdictions where South32 Shares will be listed. It is intended that the initial composition of the
South32 Board following the Demerger will reflect a range of geographical backgrounds, including Australia, South Africa and the United Kingdom. Regard has also been
had for the need for diversity, in its broadest context.

David Crawford will be the Chairman of South32. The appointment has regard to Mr Crawford’s deep governance experience, including his skill and experience in the areas
of risk and financial controls both in the metals and mining sector and other industries, which are considered particularly important in the early years of South32’s life. Keith
Rumble and Xolani Mkhwanazi have also been asked to join the South32 Board as Non-executive Directors. Both have deep commercial experience in both the metals and
mining sector and in the regions where South32 will operate, especially South Africa.

Graham Kerr will lead South32 as its first Chief Executive Officer. Mr Kerr has been a long-term employee of BHP Billiton with his most recent assignment being Chief
Financial Officer. In addition to his financial expertise he brings operational experience, having run one of BHP Billiton’s businesses based in the United Kingdom
and Canada. He has participated in BHP Billiton’s extensive talent and development programs for many years. His leadership skills have been recognised, as has his potential
to succeed to the most senior leadership roles. He takes with him BHP Billiton’s commitment to health and safety and its rigorous financial and operational disciplines.

Other members of the executive team who will leave BHP Billiton and join South32 (Brendan Harris, Ricus Grimbeek, Mike Fraser and Nicole Duncan) have all participated
in BHP Billiton’s talent and development programs. They have been selected for the respective operational and functional skills they will bring to their new roles and for
their alignment with BHP Billiton’s charter values. They are considered the best people for these crucial roles.

Biographies for these proposed directors and senior management of South32 are set out below.

South32 intends to appoint additional Non-executive Directors in time.

As part of its commitment to South Africa, South32 has given undertakings to the FinSurv Department that, among other things, the South32 Board and management team of
South32 will include strong South African representation, South32 Board meetings will be regularly convened in South Africa and South32’s African operations will be
managed from a regional head office in South Africa.

8.1 DIRECTORS
(a) Biographies
As at the date of this document, the known members of the South32 Board at the ASX Listing Date are:
Table 8.1: South32 Directors

Name Age Nationality Position


David Crawford 71 Australian Chairman and Independent Non-executive Director
Graham Kerr 43 Australian Chief Executive Officer and Executive Director
Keith Rumble 60 South African Independent Non-executive Director
Xolani Mkhwanazi 59 South African Non-executive Director
(1) David Crawford AO, BComm, LLB, FCA, FCPA, 71
Chairman and Independent Non-executive Director
Mr Crawford will be the Chairman of South32.
Mr Crawford has extensive experience in risk management and business reorganisation. He has acted as a consultant, scheme manager, receiver and manager and
liquidator to very large and complex groups of companies. Mr Crawford was previously Australian National Chairman of KPMG, Chartered Accountants. Other
directorships and offices (current and recent):
• Chairman of Australia Pacific Airports Corporation Limited (since May 2012).
• Chairman of Lend Lease Corporation Limited (since May 2003) and director (since July 2001).

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• Former director of BHP Billiton Limited (from May 1994 to November 2014) and BHP Billiton Plc (from June 2001 to November 2014).
• Former Chairman (from November 2007 to December 2011) and former director (from August 2001 to December 2011) of Foster’s Group Limited.

(2) Graham Kerr, BBus, FCPA, 43


Chief Executive Officer and Executive Director
Mr Kerr joined BHP Billiton in 1994 and was appointed Chief Financial Officer in November 2011. Mr Kerr retired from the BHP Billiton Group Management
Committee, and as Chief Financial Officer of BHP Billiton, on 1 October 2014. Prior to his appointment as Chief Financial Officer of BHP Billiton, Mr Kerr was
President of Diamonds and Specialty Products. Mr Kerr has worked in a wide range of operational and commercial roles across the BHP Billiton Group.

As President of Diamonds and Specialty Products, Mr Kerr was accountable for the EKATI Diamond Mine in Canada, the Richards Bay Minerals Joint Venture in
South Africa, diamonds exploration in Angola, the Corridor Sands Project in Mozambique and the development of BHP Billiton’s potash portfolio in Canada. Prior to
that Mr Kerr held the positions of Chief Financial Officer of Stainless Steel Materials, Vice President Finance BHP Billiton Diamonds and Finance Director for the
BHP Canadian Diamonds Company. In 2004 Mr Kerr left BHP Billiton for a two-year period when he was General Manager Commercial for Iluka Resources Ltd.

(3) Keith Rumble, BSc, MSc (Geology), 60


Independent Non-executive Director
Mr Rumble was previously Chief Executive Officer of SUN Mining, a wholly-owned entity of the SUN Group, a principal investor and private equity fund manager
in Russia, India and other emerging and transforming markets. Mr Rumble has more than 30 years’ experience in the resources industry, specifically in titanium and
platinum mining, and is a former Chief Executive Officer of Impala Platinum (Pty) Ltd and former Chief Executive Officer of Rio Tinto Iron and Titanium Inc in
Canada. Mr Rumble began his career at Richards Bay Minerals in 1980 and held various management positions before becoming Chief Executive Officer in 1996.

Mr Rumble will retire from the BHP Billiton Board at or around the time of the BHP Billiton Shareholder vote on the Demerger Resolution.

Other directorships and offices (current and recent):


• Director (non-executive) of BHP Billiton Limited and BHP Billiton Plc (since September 2008).
• Director of Enzyme Technologies (Pty) Limited (since September 2011).
• Director of Elite Wealth (Pty) Limited (since August 2010).
• Board of Governors of Rhodes University (since April 2005).
• Trustee of the World Wildlife Fund, South Africa (since October 2006).
• Former director of Aveng Group Limited (from September 2009 to December 2011).

(4) Xolani Mkhwanazi, BSc, MSc, PhD (Applied Physics), 59


Non-executive Director
Dr Mkhwanazi joined BHP Billiton in February 2005 as President and Chief Operating Officer South Africa Aluminium. Dr Mkhwanazi was appointed Chairman of
BHP Billiton in South Africa in 2009. Dr Mkhwanazi previously served as Chief Executive Officer of Bateman Africa Ltd and the National Electricity Regulator.
Prior to that, he held senior positions at the Council for Scientific and Industrial Research. During this period, he played a key role in the formulation of South African
National Science and Technology Policy. In his early career, Dr Mkhwanazi was a Senior Scientist at the Atomic Energy Corporation and Head of the Physics
Department at the University of Swaziland.

(b) Remuneration
South32 intends to remunerate its Non-executive Directors at the level necessary to attract and retain high-quality individuals, to reflect the size and complexity of South32,
and considering the anticipated workload and time commitment of the role. In setting its fees, South32 will take advice from an appropriately qualified independent
remuneration adviser.
The initial maximum aggregate amount available for fees for Non-executive Directors as approved by BHP Billiton as shareholder prior to listing will be A$3,900,000 per
annum. In accordance with the ASX Listing Rules and South32’s Constitution, South32 will seek shareholder approval for changes to the maximum aggregate amount
available for fees for Non-executive Directors. Executive Directors of South32 will be remunerated in their capacity as executives and their remuneration will not contribute
towards the maximum aggregate amount.
Non-executive Directors will receive additional fees, from within the maximum aggregate approved amount, for services as chairs and members of South32 Board
committees. The Chairman of the South32 Board will not receive any additional fees for his participation in South32 Board committees. The initial fees to be paid to the
South32 Chairman and Non-executive Directors (which will include superannuation contributions) will be:

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Table 8.2: Director and committee Fees

A$ Per annum(a)
Chairman(b) 550,000
Non-executive Directors (excluding the Chairman) 180,000
Chair of Risk and Audit Committee 45,000
Chair of Remuneration Committee 45,000
Chair of Sustainability Committee 45,000
Member of Risk and Audit Committee 22,500
Member of Remuneration Committee 22,500
Member of Sustainability Committee 22,500

(a) These fees were set after considering fee levels for comparable roles in companies of similar complexity, size, geographic footprint, listing jurisdictions, reach and
industry. They reflect the responsibilities, location, qualifications and experience considered necessary to discharge the responsibilities of the Board. In assessing the
appropriate fee level independent advice was sought from appropriately qualified experts. US dollar fees of US$500,000 per annum for the Chairman and US$160,000
per annum (base) for Non-executive Directors were endorsed. The Australian dollar fees were derived after applying an exchange rate of US$0.90 per Australian
dollar. While a matter for South32, it is expected that Directors domiciled in locations outside Australia will be offered the choice of having fees denominated in
Australian dollars or the currency of domicile.
(b) Mr David Crawford was announced as the proposed Non-executive Chairman of South32 in August 2014. Mr Crawford was subsequently appointed as a Non-
executive Director and Chairman of South32 on 2 February 2015 in order to assist in the implementation of the Demerger. Mr Crawford will receive total fees of
approximately A$171,000 in respect of his services to South32 in the period leading up to the Demerger (estimated for the period 2 February to 26 May 2015). These
fees reflect the level of assistance provided and have been derived from the annual Chairman’s fee of A$550,000 above, prorated for the time period up to the date of
Demerger.

Non-executive Directors are not eligible to participate in any short-term or long-term incentive arrangements and there are no provisions in any of the Non-executive
Directors’ appointment arrangements for compensation payable on early termination of their directorship.

Non-executive Directors will apply 25 per cent of their fees to the purchase of South32 Shares until they achieve a minimum shareholding level of one year’s fees.
Thereafter, they must maintain at least that minimum shareholding level of one year’s fees throughout their tenure.

Recognising the global nature of South32, travel allowances will be provided for extended travel for Board business.

The remuneration of the Chief Executive Officer is summarised in Section 8.2(b).

(c) Director and officer indemnity arrangements


South32 intends to enter into a deed of indemnity, insurance and access with each of the South32 Directors. These deeds will indemnify the South32 Directors against
liability to any person (other than South32 or a related body corporate) that may arise from their acting as an officer of South32. There is an exception to the indemnity where
the liability arises out of conduct involving a lack of good faith, or is otherwise prohibited by law.

8.2 SENIOR MANAGEMENT


(a) Biographies
South32 will be led by an experienced and capable management team which has a deep understanding of South32’s business. Key members of South32’s senior
management team will include:1

(1) Graham Kerr, BBus, FCPA, 43


Chief Executive Officer and Executive Director
In August 2014, Mr Kerr was appointed as Chief Executive Officer (CEO) designate of South32. Information about Mr Kerr is contained in Section 8.1(a)(2).

(2) Brendan Harris, BSc, 43


Chief Financial Officer
Mr Harris joined BHP Billiton as Vice President Investor Relations Australasia in July 2010 and was appointed Head of Investor Relations in July 2011. Prior to
joining BHP Billiton he held various roles in investment banking over almost a decade including Executive Director Metals and Mining Research, Macquarie
Equities, where he had primary responsibility for Australian listed metals and mining research. During Mr Harris’ early career as an exploration geologist he was
involved in iron ore exploration in the Pilbara region of Western Australia with Robe River Iron Associates and gold and base metals exploration in the Gawler Craton
in South Australia. Mr Harris also gained experience with Western Geophysical in Perth, Western Australia where he participated in the reprocessing of seismic data.
Mr Harris holds a Bachelor of Science in geology and geophysics.

1 In addition to senior management personnel discussed below, Jo McConnell was appointed as Acting Chief People Officer of South32.

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(3) Ricus Grimbeek, BEng, 45


President and Chief Operating Officer, Australia
Mr Grimbeek joined BHP Billiton in February 1992 as a Mining Engineer in training. Mr Grimbeek’s career has spanned numerous technical and operating roles
within and outside the company including time as the Executive Vice President Mining for Lonmin Platinum. Mr Grimbeek was the Head of Group HSEC from April
2009 to October 2011 and President and Chief Operating Officer of the EKATI Diamond Mine in Canada from May 2007 to March 2009. In November 2011, he was
appointed Asset President, Worsley. Mr Grimbeek holds a Mining Engineering degree from the University of Pretoria and an Advanced Certificate in Mine Ventilation
from the Chamber of Mines.

(4) Mike Fraser, BCom, MBL, 49


President and Chief Operating Officer, Africa
Mr Fraser joined BHP Billiton in January 2000 as Head of Compensation and Benefits. Mr Fraser was appointed President, Human Resources and a member of the
Group Management Committee in August 2013. Previously Mr Fraser led BHP Billiton’s Mozal operation in Mozambique as Asset President from September 2009 to
October 2012. Prior to taking up this role Mr Fraser worked across a number of roles in BHP Billiton’s Coal, Manganese and Aluminium businesses in a number of
geographies. Prior to joining BHP Billiton Mr Fraser held a variety of leadership roles in a large internationally diversified industrial business. Mr Fraser holds a
Master of Business Leadership and a Bachelor of Commerce from the University of South Africa.

(5) Nicole Duncan, BA (Hons), LLB, 43


Chief Legal Officer and Company Secretary
Ms Duncan joined BHP Billiton in July 2000 as a Counsel in Group Legal and was appointed Vice President, Company Secretariat in September 2013. Prior to this
role, Ms Duncan held various legal and commercial roles within BHP Billiton. Ms Duncan was Vice President, Supply, Group Information Management from October
2011 to August 2013. Previously, Ms Duncan held the role of Senior Manager, Group Legal, supporting the marketing function and prior to that played a key role in
operations, major expansions and merger and acquisition projects. Prior to joining BHP Billiton, she was a lawyer at Ashurst (formerly Blake Dawson Waldron) in
Melbourne. Ms Duncan graduated from the Australian National University with a degree in Law and an Honours degree in History.

(b) Remuneration
The South32 Board recognises that remuneration will have an important role to play in supporting the implementation and achievement of South32’s strategy and ongoing
performance. It will be designed to align the activities of management to the interests of shareholders.

Remuneration will be set at a level that takes into account responsibilities, location, skills, experience and performance.

The key principles that underpin the design of remuneration arrangements are:
• support the execution of South32’s strategy in alignment with its risk framework;
• be market competitive and designed to attract, retain and motivate talented individuals and teams, without paying more than is necessary;
• comprise fixed and at-risk components which link a significant proportion to performance and the creation of value for shareholders;
• apply demanding performance conditions to at-risk components, including financial and non-financial measures;
• limit termination benefits to pre-agreed contractual and approved obligations;
• be equitable and be set having regard to the expectations of shareholders.

South32’s remuneration arrangements will be designed to ensure that executives take a long-term approach to decision-making, and do not promote a focus on short-term
results at the expense of longer-term business growth and success.

A significant portion of total remuneration for the CEO and other members of senior management will be accrued and paid in accordance with the terms and conditions of
the South32 Equity Incentive Plan. The South32 Equity Incentive Plan is intended to be established shortly after the implementation of the Demerger on the terms and
conditions more fully described in Section 8.7(a) below. Accordingly, a significant portion of total remuneration for the CEO and other members of senior management will
be at-risk (that is, dependent largely on the performance of the business of South32). In the case of the CEO, 71 per cent of his total target remuneration is at-risk. The equity
component of an award under the short-term incentive (STI) plan will be deferred for an additional period. Performance under the long-term incentive (LTI) plan will be
measured over an extended period aligned with South32’s strategy. The actual rewards received by the CEO and other members of senior management will therefore reflect
South32’s performance and share price over a prolonged time frame.

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While the performance conditions attaching to both the STI and the LTI will be a matter for the Board of South32, the structure has been designed to provide an appropriate
focus on South32’s sustained performance beyond the end of the initial measurement period. This approach will also provide a transparent mechanism for clawback or
adjustment in the event of a restatement of South32’s results through changes to the vesting or non-vesting of deferred awards.

An important feature of the remuneration arrangements is that they will not be driven by a purely formulaic approach. The South32 Board will hold discretion to determine
that awards are not provided or vested in circumstances where it would be inappropriate to do so.

The remuneration of the CEO, which is set out in Table 8.3 below, was set having regard to remuneration levels for comparable roles in global companies of similar
complexity, size, geographic footprint, listing jurisdictions, reach and industry. It was assessed against levels in the 10th-40th largest companies on the ASX by market
capitalisation. Reference was also had to an international resources peer group for this role. The level reflects the CEO’s responsibilities, location, qualifications and
experience. Advice was sought from appropriately qualified experts and guidance derived from the principles outlined in Section 8.2(b) above.

Table 8.3: CEO annual target remuneration


The STI is entirely performance based and comprises half cash STI and half deferred STI. It will be based on a scorecard of financial and non-financial
measures for each year. This target is 120 per cent of base salary. The maximum is 180 per cent of base salary (or A$3.186 million).

LTI
Base STI (fair
salary (target) value) Total
A$(’000) 1,770 2,124 2,177 6,071
Graham Kerr(a)
% 29 35 36 100

The CEO will earn this amount as base salary. It includes minimum superannuation contributions required by law. There is no pension payment in addition to this sum.

The LTI is entirely performance based and aligned to shareholder interests. This value is based on 300 per cent face value of base salary together with a fair value estimate
taking into account an estimated 41 per cent probability of vesting over the performance period. The actual value of this LTI award cannot be determined until after the end
of the performance period. The maximum value at grant date that can be received from the LTI is 300 per cent of base salary (or A$5.310 million).

• At-risk remuneration • Fixed remuneration

(a) Remuneration was first determined in US dollars to allow for effective benchmarking and converted to Australian dollars by applying an exchange rate of 0.90. Going
forward, remuneration arrangements will be a matter for South32 and its shareholders.

(c) Employment contracts


A summary of the key terms of the employment contract and remuneration arrangements for Mr Graham Kerr in his capacity as CEO is outlined in Table 8.4 below:
Table 8.4: Graham Kerr employment contract and remuneration summary

Total fixed Mr Kerr’s fixed remuneration comprises base salary and other minor benefits. Mr Kerr’s
remuneration base salary will be A$1,770,000 per annum, and it includes superannuation contributions
required by law.
This base salary was set after considering remuneration levels for comparable roles in
global companies of similar complexity, size, geographic footprint, listing jurisdictions,
reach and industry. It reflects the CEO’s responsibilities, location, qualifications and
experience. This sum will be reviewed annually.
Short-term Mr Kerr will be eligible to participate in South32’s STI arrangements. The purpose of
incentive STI is to focus Mr Kerr’s efforts on those performance measures and outcomes that are
priorities for South32 for the relevant financial year, and to motivate Mr Kerr to strive to
achieve stretch performance objectives. They will comprise financial and non-financial
measures for each year and will be set on the basis that they are expected to have a
significant short-term and long-term impact on the success of South32. The measures
are set at the commencement of each financial year.
The target opportunity for Mr Kerr will be 120 per cent of base salary, with a maximum
award of 180 per cent of base salary for stretch performance. Half of any STI will be
delivered in cash at the end of the performance year, with the other half delivered in
rights under the South32 Equity Incentive Plan, as outlined in Section 8.7(a). Deferral of
a portion of STI awards in deferred equity over South32 Shares encourages a longer-term
focus aligned to that of shareholders.

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Long-term Mr Kerr will be eligible to participate in South32’s LTI arrangements under the South32
incentive Equity Incentive Plan, as outlined in Section 8.7(a), and will have a maximum LTI opportunity
of up to 300 per cent of base salary on a face value basis. The purpose of the LTI is to focus
Mr Kerr’s efforts on the achievement of sustainable long-term value creation and success
of South32 (including appropriate management of business risks). The provision of LTI
awards also encourages long-term share exposure for Mr Kerr, and aligns the long-term
interests of Mr Kerr and shareholders. This alignment will be demonstrated by performance
being measured under the LTI over an extended time period, aligned to South32’s strategy.
LTI awards will be subject to a relative TSR performance condition, which must be achieved
over the performance period. Relative TSR has been chosen as the most appropriate
measure as it allows for an objective external assessment over a sustained period on a basis
that is familiar to shareholders. Full vesting of the LTI award will only occur where South32’s
TSR significantly outperforms the TSR of the comparator group(s). The comparator group(s)
and required outperformance for full vesting will be determined by South32 in relation to
each grant. To ensure that the LTI performance conditions continue to support operational
excellence, risk management and the execution of South32’s strategy, the LTI award may
be subject to further performance measures to supplement the relative TSR performance
condition. Should this be the case, the vesting of a portion of any LTI award may instead
be linked to performance against the new measure(s). South32 expects that in the event
of introducing an additional performance measure(s), the weighting of the relative TSR
measure would remain significant.
Contract Employment will be effective on the date on which the Demerger takes effect and will continue for an indefinite term.
duration
Cessation of South32 may terminate Mr Kerr’s employment by giving six months’ notice of termination.
employment Mr Kerr may terminate by giving six months’ notice. South32 has discretion to make
payment in lieu of notice in either circumstance.
South32 may terminate without notice in certain circumstances, including serious
misconduct and conduct which adversely affects the reputation of South32.
Mr Kerr may terminate without notice within two months of a fundamental change that
materially diminishes his status, duties, authority, reporting lines or terms and conditions
of his employment (other than in circumstances agreed with South32) and will receive
payment in lieu of six months’ notice.
The consequences for unvested incentive awards on termination of Mr Kerr’s appointment
will be in accordance with the South32 Equity Incentive Plan and terms of grant.
Post- Mr Kerr will be subject to a number of post-employment restraints for a period of six months after his employment with South32 ends, including
employment restrictions on working with South32’s competitors and on soliciting South32 employees or customers.
restraints

South32 has entered into employment agreements with other members of senior management which are, in general, consistent with the arrangements that apply to the CEO
(as described above), except as described below.

Mr Fraser has been asked to assume the role of President and Chief Operating Officer Africa at South32. Mr Fraser was selected because of his extensive experience in
southern Africa, having worked in the BHP Billiton Group’s coal, aluminium and manganese assets before being appointed Asset President of the Mozal aluminium smelter.
He brings deep operational and functional expertise to this key leadership role. As a long term BHP Billiton employee he has participated over many years in the company’s
talent assessment and development program and is considered to have the skills and experiences necessary to lead this important part of South32’s business. These include
the operational expertise required to lead the large South African based assets, along with a relentless commitment to health and safety; a set of values fully aligned to those
in the BHP Billiton Charter; and an understanding of the need to work in harmony with our local communities.

Before agreeing to take this role, Mr Fraser was a member of the BHP Billiton Group Management Committee. His target remuneration for his new role in South32 has been
benchmarked against similar roles in comparator companies and is approximately 23 per cent lower than his current remuneration. It is not considered appropriate to propose
a permanent remuneration package for Mr Fraser that is out of step with the benchmarking data for like roles. However, it is considered appropriate to put some transitional
arrangements in place that will provide an opportunity for him to bridge the gap between his current target remuneration as a member of BHP Billiton’s senior executive
team and his remuneration at South32 for the first three years of his employment.

Those arrangements will take the form of transitional performance awards. They will comprise three tranches of performance awards valued at US$820,000 each and which
will be available to vest in August 2016, 2017 and 2018. The awards will not automatically vest and will be subject to performance conditions. Vesting can be in whole, in
part or nil and will be subject to an assessment by the South32 Remuneration Committee on factors including (1) Mr Fraser’s ongoing service; (2) South32’s performance,
including its relative TSR; and (3) Mr Fraser’s personal performance. The performance assessment will be conducted by the South32 Remuneration Committee and the
outcomes will be reported in the South32 Remuneration Report.

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8.3 SHAREHOLDINGS AND INTERESTS OF SOUTH32 DIRECTORS, SENIOR MANAGEMENT AND OTHER SPECIFIED PERSONS
All South32 Shares are currently held by BHP Billiton Limited. Therefore, no shares of South32 are held by the South32 Directors or senior management of South32.

The South32 Directors and senior management of South32 hold the following shares, or right to shares, in BHP Billiton as at 14 March 2015. Where applicable, the
information includes shares held in the name of a spouse, superannuation fund, nominee and/or other controlled entities:

Table 8.5: South32 Directors and senior management – BHP Billiton shareholding (and indirect holding in South32)

Name BHP Billiton Shares – Limited BHP Billiton Shares – Plc


Directors
David Crawford 33,127 6,000
Graham Kerr 94,661 —
Keith Rumble — 20,680
Xolani Mkhwanazi(a) — 28,854

Rights – Limited Rights – Plc


(subject to (subject to
service and/or service and/or
BHP Billiton BHP Billiton performance performance
Shares – Limited Shares – Plc conditions) conditions)
Senior management
Graham Kerr 94,661 — 285,306 —
Brendan Harris 18,925 216 27,187 164
Ricus Grimbeek — 89,821 — 49,450
Mike Fraser — 172,696 132,931 45
Nicole Duncan 8,429 754 17,217 —

(a) Xolani Mkhwanazi holds 79,067 BHP Billiton Plc rights.

Immediately following the Demerger, the South32 Directors and senior management of South32 will hold the following South32 Shares, or rights to South32 Shares:

Table 8.6: South32 Directors and senior management – South32 shareholding following the Demerger

Name South32 Shares


Directors
David Crawford 39,127
Graham Kerr(a) 94,661
Keith Rumble 20,680
Xolani Mkhwanazi(a) 28,854
Senior management
Graham Kerr(a) 94,661
Brendan Harris(a) 19,141
Ricus Grimbeek(a) 89,821
Mike Fraser(a) 172,696
Nicole Duncan(a) 9,183

(a) Where rights over BHP Billiton Shares are being cancelled and replaced with equivalent rights over South32 Shares (as described in Table 8.8), the number of rights
over South32 Shares granted to affected participants will be determined taking into account the value of the rights over BHP Billiton Shares being cancelled, with the
replacement rights over South32 Shares having equivalent value. In assessing the relative value of the rights, the five-day VWAPs of BHP Billiton and South32 Shares
following South32’s listing on the ASX will be taken into account.

No South32 Director currently has any interests (beneficial or non-beneficial) in the share capital of South32. Except as set out above, no South32 Director holds an interest
in any other securities of South32.

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8.4 CONFLICTS OF INTEREST


In respect of any South32 Director (listed in Section 8.1) or member of South32’s senior management (listed in Section 8.2), except as set out in Section 8, there are no actual
or potential conflicts of interests between their duties to South32 and the private interests and/or other duties they may also have. In particular, none of the South32 Directors
or members of South32’s senior management:
• holds or has any interest in any South32 assets (other than any indirect interests as a holder of BHP Billiton Shares);
• has acquired, disposed or leased any South32 asset;
• has or had any interest in any transaction which is or was unusual in its nature or conditions or significant to the business which was effected by any member of the
South32 Group during the current or immediately preceding financial year, or which was effected during an earlier financial year and remains in any respect
outstanding or unperformed;
• has or had a beneficial interest in any contract to which any member of the South32 Group was a party during the current or immediately preceding financial year; or
• was selected to be a South32 Director pursuant to any arrangement or understanding with any major customer, supplier or other person having a business connection
with the South32 Group (with the exception of BHP Billiton).

None of the South32 Directors, officers, promoters or major shareholders or their families had any interest, direct or indirect, in any transaction during the last two financial
years or in any proposed transaction which has affected or will materially affect South32 or its investment interests or subsidiaries (except to the extent set out in this
document).

8.5 CONFIRMATIONS
Each person who will be a director of South32 at the ASX Listing Date has submitted duly completed directors’ declarations. The South32 Directors and members of its
senior management do not have any information to declare pursuant to JSE Listing Rules 7.B.2(f) to (m).

In particular, as at the date of this document, no South32 Director or senior manager has:
• been convicted in relation to offences involving dishonesty, fraud, theft, misrepresentation, forgery, perjury or embezzlement;
• been associated with any bankruptcy, receivership, voluntary compromise arrangement, insolvency or liquidation acting in their personal capacity or the capacity of a
director with an executive function within the company or other officer (other than in the provision of professional services to companies in such circumstances);
• been subject to any public criticism and/or sanctions by any statutory or regulatory authorities (including designated professional bodies); or
• been disqualified by a court from acting as a director of a company or from acting in the management or conduct of the affairs of any company.

In addition, there are no family relationships between any of the South32 Directors or members of the administrative, management and/or supervisory bodies of South32.

No fees have been paid by South32 or accrued to a third party in lieu of director’s fees.

There will not be any variation in the remuneration receivable by South32 Directors as a consequence of the Demerger.

No amount has been paid or agreed to be paid by South32 within the three years preceding the date of this document, directly or indirectly, to any South32 Director to induce
them to accept a directorship or to qualify them as a director or otherwise for the rendering of services by them in connection with the promotion or formation of South32
(except as disclosed in Section 8.1 and 8.2).

8.6 BUSINESS ADDRESS


The current business address of all South32 Directors and senior management is Level 32 Brookfield Place, 125 St Georges Terrace, Perth, WA, 6000, Australia, and it is
proposed that following implementation of the Demerger the principal business address will be Level 35, 108 St Georges Terrace, Perth, WA, 6000, Australia.

8.7 EQUITY INCENTIVE PLANS


(a) South32 Equity Incentive Plan
South32 intends to establish an equity plan (South32 Equity Incentive Plan) to facilitate the grant of South32 equity awards to employees. The purpose of these awards will
be to assist in the motivation, retention and reward of employees, and to further align the interests of employees with the interests of South32 Shareholders by linking a
portion of remuneration to South32’s ongoing success.

The rules of the South32 Equity Incentive Plan will be broad enough to cover all awards of equity granted as remuneration (including incentives) to employees, with the
flexibility for the South32 Board to determine the specific conditions that will apply to each award at the time of grant. While the rules of the South32 Equity Incentive Plan
will set up default treatments that will apply in certain circumstances (for example cessation of employment), the South32 Board will have the ability to apply different
treatments for a particular award. This will enable the terms of awards under the South32 Equity Incentive Plan to be tailored based on the participant group and the nature
and purpose of the award.

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The rules of the South32 Equity Incentive Plan and the specific conditions that are intended to apply to the short-term and long-term arrangements under the initial terms of
grant are set out in Table 8.7 below:

Table 8.7: South32 Equity Incentive Plan summary

Grant of awards South32 will be able to grant awards under the South32 Equity Incentive Plan in the form of nil-cost or market-priced options over fully
paid ordinary shares, or rights to receive fully paid ordinary shares or fully paid ordinary shares (collectively referred to as awards). Any
grant of awards to the CEO under the South32 Equity Incentive Plan will be subject to approval by shareholders at South32’s Annual
General Meeting.
This gives South32 broad flexibility to select the most appropriate equity instrument to effectively incentivise employees, which may vary
depending on the seniority of the executive, the jurisdiction in which they are issued, or prevailing market and regulatory conditions.
Upon vesting of awards, participants will receive fully paid ordinary shares in South32. The South32 Board can decide whether to
purchase shares on-market or issue new shares in order to satisfy vesting. The South32 Board will also have the discretion to settle awards
in cash rather than equity, but only in circumstances where this is considered appropriate by the South32 Board.
The transitional awards, and initial awards under the STI and LTI, will be granted in the form of rights.
Eligibility to participate Grants may be made at the South32 Board’s discretion to employees of South32 or its related bodies corporate or any other person the
South32 Board determines to be eligible to receive a grant.
Vesting conditions The South32 Board will determine the vesting conditions applying to awards at the time of grant. These can be service-based or
performance-based vesting conditions (or a combination of both, as will be the case for LTI awards in respect of the CEO). Again, this
provides flexibility for the South32 Board to tailor the conditions according to the nature of the award, the relevant participants and to
reflect market practice as it evolves.
Any rights that remain unvested at the end of the applicable performance, service or holding period will lapse immediately.
Price As awards under the South32 Equity Incentive Plan constitute part of participants’ remuneration, generally no payment is required by the
participant for the grant of an award (unless the South32 Board determines otherwise).
Malus/clawback The South32 Board will have a broad discretion to reduce or clawback awards in certain circumstances to ensure that no inappropriate
benefit is obtained by the participant. The South32 Board’s discretion will apply to vested and unvested awards, including shares allocated
or cash paid in connection with vested awards.
The circumstances in which the South32 Board’s discretion is intended to apply include:
• in relation to the personal performance of a participant, including for any fraud and/or misconduct;
• in relation to the performance of the division or function in which the participant is employed or for which they have accountability,
or which is relevant in relation to the participant’s role;
• in relation to the performance of South32;
• where a participant’s award vests or may vest as a result of the fraud or misconduct of another person, and would not have otherwise
vested;
• where South32 becomes aware of a material misstatement or omission in the financial statements of a South32 Group company or the
South32 Group;
• where South32 is required or entitled by law or South32 policy to reclaim remuneration from a participant; or
• where any circumstances occur or any other factor exists (relating to such other different consideration or criteria) that the South32
Board determines in good faith to have resulted in an inappropriate benefit to the participant.
In addition, the South32 Board will have discretion to determine that a participant’s awards will lapse notwithstanding that any
performance hurdles have been met, if the Board considers that vesting the award is not justified.

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Corporate action If there is a corporate action or capital reorganisation of South32 (including bonus issues and rights issues), the South32 Board may make
or capital reorganisation appropriate adjustments to the terms of awards to ensure there is no material advantage or disadvantage to the participant.
Restrictions on Participants must not sell, transfer, encumber, hedge or otherwise deal with awards.
dealing
Participants will be free to deal with the shares allocated on vesting of awards, subject to South32’s Securities Dealing Policy and any
other restrictions imposed by the South32 Board at its discretion as a condition of the award.
Cessation of employment The provisions of the South32 Equity Incentive Plan will give the South32 Board the discretion to determine the treatment of a
participant’s awards on cessation of their employment, including that they will lapse, vest or cease to be subject to restrictions. The
relevant treatment on cessation of employment can be set at the time of grant.
For the CEO and other senior management, award terms under the STI and LTI will provide that:
• where a participant resigns or is terminated for cause, their awards will lapse;
• if a participant ceases employment due to death, serious injury, disability or illness that prohibits continued employment, or total and
permanent disablement, all of their unvested awards will immediately vest;
• if the participant ceases employment in any other circumstances then under the STI the rights will remain on foot (subject to a
South32 Board discretion to forfeit some or all of the awards) and under the LTI a pro rata portion of the unvested awards will remain
on foot and subject to the original performance hurdles, and will vest or lapse in the ordinary course (subject to a South32 Board
discretion to determine that some or all of a participant’s awards will lapse or vest with effect from the date the participant ceases
employment, or such other date the South32 Board determines).
The South32 Board retains the discretion to lapse a participant’s unvested award after they have been permitted to continue holding them
where a change in circumstance means it is no longer appropriate for the participant to retain their unvested award.
Change of control In the circumstance of a change of control the award terms for the CEO and other members of senior management will not allow for the
early vesting of equity awards without reference to the performance conditions under which grants were made.
In the case of awards made under the STI plan in relation to the assessment of past performance and for which vesting has been deferred,
those awards will vest in full.
In the case of grants made under the LTI plan, the South32 Board will have the discretion to assess performance against the published
performance conditions at the time of the change of control and, if satisfied, can exercise its discretion to vest awards to the extent
represented by that performance. The number of awards that will vest will also be pro rated to reflect the period of time from the
commencement of the performance period to the date of the change of control. Those awards that do not vest will lapse. Awards may also
lapse or be cancelled if the South32 Board determines in its absolute discretion that a term of the change of control is that holders of those
awards will participate in an acceptable alternative employee share incentive scheme which is reasonably acceptable to the South32 Board.
If an actual change of control occurs before the South32 Board has exercised this LTI discretion, a pro rata portion of awards equal to the
portion of the relevant performance period that has elapsed and tested against the performance hurdle up to the actual date of the change of
control will immediately vest.
For other employees, the South32 Board has the discretion under the South32 Equity Incentive Plan rules to determine that some or all
awards will vest or cease to be subject to restrictions where there is likely to be a change in the control of South32.
However, the South32 Board may choose to specify the treatment of awards on change of control in the terms of grant, and if it does so,
then typically:
• under the STI, all rights will vest in the event of a likely change of control; and
• under the LTI, the South32 Board will retain the discretion to accelerate vesting of some or all rights if there is a likely change of
control, and the balance will lapse (if the change of control occurs before the South32 Board has exercised its discretion, a pro rata
portion of rights will immediately vest, and the South32 Board will decide whether the balance should vest or lapse).
Dividends and voting rights Awards granted under the STI and LTI do not carry dividends or voting rights prior to vesting. However, the South32 Board may
determine that a grant of awards will include an entitlement to a dividend equivalent payment in respect of awards that vest.
Minimum shareholding The CEO and other members of senior management will be expected to grow their holdings to the minimum shareholding requirement
requirement from the scheduled vesting of their awards over time.

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(b) All employee share plan for South32


South32 intends to establish an employee share plan to provide employees with an opportunity to receive fully paid ordinary shares in South32, which will assist in aligning
their interests with those of South32 Shareholders. South32 is considering the most appropriate structure for this plan and details regarding the plan will be made publicly
available once these have been determined.

(c) Treatment of BHP Billiton awards for transferring employees


BHP Billiton currently operates STI and LTI programs, under which employees may receive cash and/or rights to receive BHP Billiton Shares subject to meeting defined
performance and/or service conditions.

For members of the BHP Billiton Group Management Committee (GMC), these awards are delivered under the Short Term Incentive Plan (STIP), which replaced the Group
Incentive Scheme (GIS) from FY2014 onwards, the Long Term Incentive Plan (LTIP), or provided as Transitional GMC awards. For other employees, these awards are
delivered under the Management Award Plan (MAP) and the Group Short Term Incentive Plan (GSTIP).

BHP Billiton also operates an all-employee share plan (Shareplus), through which employees contribute funds after tax to purchase shares. If employees satisfy an
employment condition and hold their purchased shares for a specified length of time, they receive an allocation of Matched Shares at the end of that period.

The BHP Billiton Board and BHP Billiton Remuneration Committee have given careful consideration as to how the Demerger will affect employees who currently
participate in these plans. The BHP Billiton Board considers it important that any changes to these plans as a result of the Demerger are fair to shareholders and at the same
time ensure that employees continue to be appropriately treated.

The treatment of the unvested awards for current participants in the BHP Billiton employee plans who will be employed within South32 if the Demerger proceeds is
described below.

Table 8.8: Treatment of the unvested awards for participants who will be part of South32 following the Demerger

Scheduled vesting
Award date Treatment
GIS FY2013 August 2015 As the vesting period will have been substantially completed at the time of the Demerger, awards will vest
GSTIP FY2013 after approval of the Demerger by BHP Billiton Shareholders. Participants will receive BHP Billiton Shares
MAP FY2013 and participate in the Demerger as ordinary shareholders.
GSTIP FY2014 August 2016 For all employees except those transferring to senior management of South32, these awards will continue on
MAP FY2014 August 2016 foot (except to the extent taxation obligations arise on Demerger, in which case sufficient awards may be
MAP FY2015 August 2017 vested to fund those obligations), however the relevant vesting conditions will be modified so that they relate
to service with South32 from the date of the Demerger. In addition, the number of awards will be adjusted to
reflect the dilution in value of BHP Billiton after South32 is demerged. The new number of awards will be
the number of awards held before the Demerger multiplied by ((the BHP Billiton five-day VWAP plus
South32 five-day VWAP) divided by BHP Billiton five-day VWAP). Prices will be based on the first five
trading days following South32’s listing on the ASX, subject to any adjustment that the BHP Billiton Board
considers appropriate in the event that the relevant five-day VWAP is reasonably determined by the BHP
Billiton Board to have been distorted by an unforeseen temporary market event unrelated to either BHP
Billiton or South32.
For employees transferring to senior management, these awards will be cancelled and replaced with awards
of equivalent value in South32 with similar terms, including the service period and vesting date.
LTI FY2013 August 2017 These awards (which only relate to employees transferring to senior management) will be cancelled and
LTI FY2014 Transitional GMC August 2018 replaced with awards of equivalent value in South32 with similar terms, including service and performance
FY2013 August 2015 conditions. Performance conditions will relate to BHP Billiton up to the date of the Demerger, and to
Transitional GMC FY2014 August 2016 South32 from the Demerger onwards.
August 2016
August 2017

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Scheduled vesting
Award date Treatment
Shareplus April 2016 Holders of Acquired Shares (being shares purchased under Shareplus by or on behalf of a participant using
April 2017 their own funds in accordance with the rules of that plan) will participate in the Demerger as ordinary
shareholders.
Participants who meet the requirements under the rules of Shareplus are awarded one share for each
Acquired Share that they hold. These are referred to as Matched Shares.
Matched Shares that participants have accrued in respect of their Acquired Shares will vest after approval of
the Demerger by BHP Billiton Shareholders. Participants will receive BHP Billiton Shares and participate in
the Demerger as ordinary shareholders.
LTI FY2015 For reasons of practicality and proximity to the Demerger, these awards (which would normally have been
STI FY2014 granted in late 2014, under the same terms and conditions which applied for LTI FY2015, STI FY2014,
GSTIP FY2014 GSTIP FY2014 and MAP FY2015 grants made to other participants) were withheld for executives
MAP FY2015 transferring to senior management roles with South32. Substitute awards of equivalent value in South32 with
similar terms, including service and performance conditions, will be provided by South32 to affected
participants.

8.8 CORPORATE GOVERNANCE


Set out below is a summary of the main corporate governance policies and practices to be adopted by South32. Details of South32’s key policies and practices and the
charters for the South32 Board and each of its committees will be made available on the South32 website in due course.

The South32 Board plays a key role in overseeing the policies, performance and strategies of South32. It will be accountable to South32’s members as a whole and must act
in the best interests of South32. The South32 Board seeks to ensure that South32 is properly managed to protect and enhance members’ interests, and that South32, its
directors, officers and employees operate in an appropriate environment of corporate governance. Accordingly, the South32 Board will adopt a framework for managing
South32, including adopting relevant internal controls, risk management processes and corporate governance policies and practices which it believes are appropriate for
South32’s business and which are designed to promote the responsible management and conduct of South32.

South32 will apply for a listing of the South32 Shares on the ASX. The ASX Corporate Governance Council has developed and released its ASX Corporate Governance
Principles and Recommendations 3rd Edition (ASX Recommendations) for Australian-listed entities in order to promote investor confidence and to assist companies in
meeting stakeholder expectations. The ASX Recommendations are not prescriptions, but rather guidelines designed to produce an outcome that is effective and of high
quality and integrity. Under the ASX Listing Rules, South32 will be required to provide a statement in its annual report, or the URL of the page on its website where such a
statement is located, disclosing the extent to which it has followed the ASX

Recommendations during each reporting period. Where South32 does not follow a recommendation, it must identify the recommendation that has not been followed and give
reasons for not following it. South32 aims to comply with all of the ASX Recommendations from the time of its listing.

(a) The South32 Board


As recommended by the ASX Recommendations, the new South32 Board will comprise a majority of Independent Non-executive Directors. The South32 Board composition
also reflects South32’s interests in, and focus on, South Africa.

Details of the South32 Directors to be appointed to the South32 Board prior to the ASX Listing Date are set out in Section 8.1. South32 intends to appoint additional Non-
executive Directors in time. Each South32 Director who has been appointed as a director of South32 as at 16 March 2015 has consented in writing to act as a director of
South32 and has signed a letter of appointment to that effect.

(b) Board Charter


The Board Charter is a statement of the practices and processes the South32 Board will adopt to discharge its responsibilities. It will include the processes the South32 Board
will implement to undertake its own tasks and activities, the matters it reserves for its own consideration and decision-making, and the authority it delegates to the CEO. It
will provide guidance on the way in which the CEO can execute that authority and the relationship between the South32 Board and the CEO. The Board Charter also
specifies the role of the Chairman, the membership of the South32 Board and the role and conduct of Non-executive Directors.

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(c) Board committees


To assist the South32 Board in exercising its authority, the Board will establish the following committees:
• Risk and Audit Committee;
• Remuneration Committee;
• Sustainability Committee;
• Nomination and Governance Committee.

Board committee membership will be restricted to Non-executive Directors of South32. Each committee will have terms of reference that set out the roles, responsibilities,
composition and processes of each committee. These terms of reference will be available on the South32 website in due course.

The intended roles and responsibilities of each of these committees are set out below:
(1) Risk and Audit Committee
The role of the Risk and Audit Committee will be to assist the South32 Board in monitoring the decisions and actions of the CEO and the South32 Group and to gain
assurance that progress is being made towards South32’s corporate objectives within the limits imposed by the South32 Board.
The Committee will assist the South32 Board in overseeing the:
• integrity of South32’s financial statements;
• appointment, remuneration, qualifications, independence and performance of the external auditor and the integrity of the audit process as a whole;
• effectiveness of the systems of internal controls and risk management;
• plans, performance, objectivity and leadership of the internal audit function and the integrity of the internal audit process as a whole;
• South32 Group’s systems for compliance with applicable legal and regulatory requirements within the Risk and Audit Committee’s area of responsibility.
(2) Remuneration Committee
The role of the Remuneration Committee will be to assist the South32 Board in overseeing the remuneration policy, its specific application to the CEO, the CEO’s
direct reports and Non-executive Directors, and its general application to all employees.
The Committee will also be responsible for:
• overseeing the adoption of South32’s incentive schemes;
• evaluating the performance of the CEO by giving guidance to the South32 Chairman;
• determining of levels of reward for the CEO and approval of reward to the CEO’s direct reports;
• overseeing South32’s compliance with applicable legal and regulatory requirements associated with remuneration matters;
• preparing the remuneration report for inclusion in South32’s annual report;
• communicating the remuneration policy (and any proposed changes to the policy) to shareholders.
(3) Sustainability Committee
The role of the Sustainability Committee will be to assist the South32 Board to take reasonable steps in overseeing the:
• adequacy of the South32 Group’s HSEC framework and management system;
• South32 Group’s compliance with applicable legal and regulatory requirements associated with HSEC matters;
• preparation of any annual sustainability report;
• performance, resourcing and leadership of HSEC matters;
• South32 Group’s performance in relation to HSEC matters, including any HSEC component of senior management incentive awards.
(4) Nomination and Governance Committee
The role of the Nomination and Governance Committee will be to assist in ensuring the South32 Board comprises individuals who are best able to discharge the
responsibilities of a director, having regard to the highest standards of governance, the strategic direction of South32 and the diversity aspirations of the South32
Board.
The Committee will also be responsible for assisting the South32 Board in its consideration of:
• the South32 Board succession planning process, including the succession planning process for the Chairman and the CEO and the identification of suitable
candidates for appointment to the South32 Board;
• board and director performance evaluation;
• the provision of appropriate training and development opportunities for directors;
• the South32 Group’s corporate governance practices;
• the independence and time requirement for Non-executive Directors.

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(d) Corporate governance policies


The South32 Board will adopt the following corporate governance policies, each prepared having regard to the ASX Recommendations and which will be made available on
South32’s website.
(1) Market Disclosure and Communications Policy
South32 is committed to promoting high standards of disclosure to ensure that trading in South32 Shares occurs in an efficient and well-informed market and it is
aware of the obligations it will have under the Corporations Act and ASX Listing Rules in particular.
To safeguard the effective dissemination of information and to ensure that directors and employees are aware of their obligations, South32 will adopt a Market
Disclosure and Communications Policy that outlines how South32 intends to comply with the continuous disclosure obligations imposed by law, including how
South32 identifies and distributes information to shareholders and market participants in a timely manner.
Information will be communicated to South32 Shareholders through lodgement with the ASX and the other exchanges on which South32 Shares are quoted, and
announcements will be made available on South32’s website.
(2) Securities Dealing Policy
South32 will adopt a Securities Dealing Policy to explain the regulations applying to dealings in securities and to establish best practice procedures for buying and
selling securities.
The Securities Dealing Policy will apply to all employees, and to directors, members of senior management and other nominated employees of South32 and its related
bodies corporate and their connected persons (Relevant Persons). The policy will provide that employees and Relevant Persons must not deal in South32 securities
when they are in possession of unpublished price-sensitive information, and the Relevant Persons must not deal on a short term trading basis, nor during designated
prohibited periods (except in exceptional circumstances).
Otherwise, trading will only be permitted by:
• directors (other than the Chairman of the South32 Board) and the CEO with prior written approval from the Chairman of the South32 Board;
• the Chairman of the South32 Board with prior written approval from the South32 Board or the Chair of the Risk and Audit Committee;
• members of senior management (other than the CEO) and nominated employees with prior written approval of the CEO.
(3) Code of Business Conduct
South32 is committed to a high level of integrity and ethical standards in all business practices. For this purpose, South32 will adopt a Code of Business Conduct that
will apply to all employees, contractors and officers engaged by South32 entities across all jurisdictions.
The Code of Business Conduct will specify the responsibilities of employees, contractors and officers to:
• act in the best interests of South32;
• act honestly and with high standards of personal integrity;
• comply with applicable laws and regulations;
• not knowingly participate in any illegal or unethical activity;
• not enter into any arrangement or participate in any activity that would conflict with South32’s best interests or that would be likely to negatively affect
South32’s reputation;
• not take advantage of the property or information of South32 or its customers for personal gain or cause detriment to South32 or its customers;
• not take advantage of their position, or the opportunities arising from it, for personal gain.

A breach of those principles or requirements is regarded as serious misconduct which may lead to disciplinary action, including termination.
Approval and reporting requirements will apply in relation to the receipt of gifts, hospitality and entertainment. The Code will also be supported by other procedures
adopted by South32, including in relation to competition law and anti-corruption.
Business conduct investigations and the management of queries and concerns will be undertaken and recorded in accordance with defined processes supporting the
Code to prevent, detect and respond correctly to business conduct incidents.
(4) Diversity and Inclusion Policy
The South32 Board will adopt a Diversity and Inclusion Policy in order to facilitate a diverse and representative workforce, particularly in management and
leadership, and to address the representation of employees from diverse backgrounds in senior management positions and on the Board. South32’s aspiration is to
have a workforce that best represents the communities in which the South32 Businesses are located and where South32 employees live.

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At a South32 Board and senior management level, gender and ethnicity have been identified as key areas of focus for South32. Accordingly, the primary focus of the
Diversity and Inclusion Policy will be achieving, over a reasonable transition period, adequate representation of women and employees from diverse ethnic
backgrounds in senior management positions and on the South32 Board.
Each year, the South32 Board will set measurable objectives with a view to progressing towards a balanced gender representation at a board and senior management
level, and may also consider setting measurable objectives relevant to ensuring other forms of diversity at a board and senior management level. The South32 Board
will report to shareholders annually, including in relation to South32’s progress towards achieving these measurable objectives.
(5) Communications strategy
South32 aims to ensure that South32 Shareholders are kept informed of all major developments affecting the state of South32’s affairs. In addition to South32’s
continuous disclosure obligations, South32 recognises that potential investors and other market participants may wish to obtain information about South32 from time
to time. South32 intends to communicate this information regularly through a range of forums and publications.
Copies of announcements lodged with the exchanges on which South32 Shares are quoted, including investor briefings, half-yearly financial statements, annual
reports and notices of meetings and explanatory notes will be available on South32’s website. It is intended that the website will also contain a facility for South32
Shareholders to direct queries to South32.

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9 SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION


9.1 OVERVIEW
The following is a summary of South32’s historical combined financial information for the periods indicated. The data has been extracted from, and is qualified in its entirety
by reference to, the historical combined financial information in Annexures 1 and 2, except for the non-IFRS measures, which are explained in Section 3.5. The summary
should be read in conjunction with the information in those sections and with Section 5 and Section 11. Investors are advised to read the whole of this document and not rely
on just the key or summarised information.

The historical combined financial information for the six months ended 31 December 2014 (H1 FY2015) and the six months ended 31 December 2013 (H1 FY2014), which
has been extracted from the historical combined financial information of South32 set out in Annexure 2, and for the twelve months ended 30 June 2014 (FY2014), the
twelve months ended 30 June 2013 (FY2013) and the twelve months ended 30 June 2012 (FY2012), which has been extracted from the historical combined financial
information of South32 set out in Annexure 1 (Reporting Periods and each a Reporting Period) has been prepared by aggregating historical financial information relating
to the businesses that will be held by South32 at the date of Demerger including assets, liabilities and transactions directly attributable to South32. No pro forma adjustments
have been applied to this historical combined financial information.

The historical combined financial information has been prepared with the objective of presenting the results, net assets and cash flows of South32 for the Reporting Periods.
The entities which comprise South32 have been under common management and control of BHP Billiton throughout the Reporting Periods covered in the historical
combined financial information. Consequently, this historical combined financial information may not necessarily be indicative of the financial performance that would have
been achieved if South32 had operated as an independent entity for the Reporting Periods, nor may it be indicative of the results of operations of South32 for any future
period.

The historical combined financial information for South32 has been prepared specifically for the purpose of this document and, except for the departures from the financial
reporting requirements and/or UKLA Prospectus Rules and JSE Listing Rules as noted in the ‘Basis of preparation of historical combined financial information’ section to
the historical combined financial information in Section 1.6 of Annexure 1, in order to comply with Sections 8.1 to 8.13 of the JSE Listing Rules and the applicable UKLA
Listing Rules and Prospectus Directive.

IFRS does not provide for the preparation of combined financial information, and accordingly in preparing the historical combined financial information certain accounting
conventions commonly used for the preparation of historical financial information as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to
public reporting engagements on historical financial information) issued by the United Kingdom Auditing Practices Board have been applied. The application of these
conventions results in certain departures from IFRS (as described more fully in the ‘Basis of preparation of historical combined financial information’ section to the historical
combined financial information in Section 1.6 of Annexure 1).

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9.2 SUMMARY OF SOUTH32’S HISTORICAL COMBINED FINANCIAL INFORMATION


Table 9.1: Summary of South32’s historical combined financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Combined income statement
Revenue 5,040 5,348 10,444 12,093 13,835
Profit/(loss) from operations 1,251 554 774 (963) 2,060
Profit/(loss) attributable to members of South32 688 317 132 (1,467) 1,401
Earnings/(loss) per ordinary share (basic) (US cents) 12.92 5.95 2.48 (27.55) 26.31
Earnings/(loss) per ordinary share (diluted) (US cents) 12.88 5.94 2.47 (27.46) 26.20
Combined balance sheet
Total assets 26,723 19,683 19,690 19,543 24,012
Total liabilities 9,176 9,394 9,870 9,423 10,200
Invested capital attributable to members of South32(c) 16,710 9,396 8,953 9,213 13,010
Other financial information
Underlying EBITDA(a) 1,306 976 2,055 2,118 2,831
Underlying EBIT(a) 800 510 1,070 1,154 1,926
Underlying Earnings(a),(b) 534 369 614 755 1,258
Net operating assets 11,460 11,412 11,290 11,409 13,641
Capital expenditure 411 394 769 1,139 2,013
Net operating cash flows 1,249 493 1,670 1,426 2,393
Summary financial ratios
Underlying EBIT margin 16.6% 10.5% 11.3% 10.5% 16.0%
Margin on third party products 7.4% 3.6% 2.3% 3.8% 4.0%

(a) Refer to Section 3.5 of this document for the definition of Underlying Earnings, Underlying EBIT and Underlying EBITDA.
(b) Refer to Section 11.3 of this document for the calculation of Underlying Earnings.
(c) During H1 FY2015 there was an issue of shares to BHP Billiton Limited of US$8 billion to enable the acquisition of the companies that will comprise South32. The
proceeds were primarily placed on deposit with BHP Billiton.

Contingent liabilities and commitments at 30 June 2014, 2013 and 2012 are set out in note 18 Contingent liabilities and note 19 Commitments of Annexure 1, respectively.

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9.3 CAPITALISATION AND INDEBTEDNESS STATEMENT


The following tables show the South32 Group’s combined capitalisation and indebtedness.
The information presented in Section 9.3 is not representative of South32’s net indebtedness on a standalone basis following implementation of the Demerger. In particular,
the ‘Unguaranteed/Unsecured’ non-current debt in Table 9.2 and ‘Other non-current loans’ in Table 9.3 primarily comprise BHP Billiton intercompany arrangements that
will be settled prior to implementation of the Demerger (without issuance of new equity to third parties). Refer to Section 10.7 for a pro forma summary of South32’s net
indebtedness.
(a) Capitalisation and indebtedness
The financial information relating to the South32 Group as at 31 December 2014 in the following table has been extracted from the historical combined financial information
set out in Annexure 2 and sets out the capitalisation and indebtedness of the South32 Group as at 31 December 2014:

Table 9.2: Capitalisation and indebtedness summary

As at
31 December
US$M 2014
Current debt
– Secured(a) 13
– Unguaranteed/Unsecured(b) 123
Total current debt 136
Non-current debt (excluding current portion of long-term debt)
– Secured(a) 682
– Unguaranteed/Unsecured(b) 3,923
Total non-current debt 4,605
Invested capital
– Invested capital attributable to members of South32(c) 16,710
– Invested capital attributable to non-controlling interests 837
Total invested capital 17,547

(a) Secured debt comprises finance leases of US$695 million.


(b) Represents bank overdraft, short-term borrowings and other unsecured loans; primarily comprises intercompany arrangements with BHP Billiton that will be settled
prior to the implementation of the Demerger.
(c) Invested capital attributable to members of South32 comprises share capital of South32 of US$8,651 million and reserves and retained earnings of US$8,059 million.

The following adjustments to the capitalisation and indebtedness information set out above will take place as part of implementation of the Demerger:
• The settlement of net intercompany balances with BHP Billiton through the issue of South32 equity and cash settlements;
• South32 will undertake a share division so that the number of South32 Shares immediately before implementation of the Demerger is equal to the number of BHP
Billiton Limited Shares on issue;
• BHP Billiton Plc will be issued with a number of South32 Shares so that it will hold a number of South32 Shares equal to the number of BHP Billiton Plc Shares on
issue as at the Plc Record Date (or a subsidiary of BHP Billiton Plc will be issued with those South32 Shares and on-transfer them to BHP Billiton Plc), with each
South32 Share being issued at the VWAP of South32 Shares traded on the ASX over the five trading days from the ASX Listing Date;
• BHP Billiton Limited will subscribe for one South32 Share for cash consideration, and separately South32 may return capital to BHP Billiton Limited, in such
amounts as are required for South32 to arrive at the post-Demerger targeted net cash balance for South32 described in Section 14.4.

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(b) Net indebtedness


The financial information relating to the South32 Group as at 31 December 2014 in the following table has been extracted from the historical combined financial information
set out in Annexure 2 and sets out the net indebtedness of the South32 Group as at 31 December 2014:
Table 9.3: Net indebtedness summary

31 December
US$M 2014
Cash(a) (426)
Cash equivalents (7)
Liquidity (433)
Current bank debt 121
Other current financial debt(b)(c) 15
Current financial debt 136
Net current financial indebtedness (297)
Other non-current loans(c) 4,605
Non-current financial indebtedness 4,605
Net financial indebtedness(d)(e) 4,308

(a) Excludes US$26 million cash that is restricted by legal or contractual arrangements.
(b) Other current financial debt includes finance leases and unsecured other borrowings.
(c) Includes finance leases of US$695 million.
(d) Net financial indebtedness does not include the fair value of South32’s derivatives.
(e) Excludes receivables from related parties.

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10 SUMMARY OF PRO FORMA HISTORICAL FINANCIAL INFORMATION

10.1 OVERVIEW
Section 10, Annexure 3 and Annexure 4 contain pro forma historical financial information of South32 (South32 pro forma historical financial information) including:
• South32 summary pro forma historical consolidated income statements for H1 FY2015 and FY2014;
• South32 summary pro forma historical consolidated cash flow statements before financing activities and tax and after capital expenditure for H1 FY2015 and FY2014;
• South32 pro forma historical consolidated balance sheet as at 31 December 2014.

References to South32 pro forma historical financial information are references to the pro forma historical consolidated financial information of South32 during the relevant
period or at the relevant time, being the businesses that are being transferred and restructured to form South32, which is proposed to be demerged to BHP Billiton
Shareholders. Reference to South32 pro forma historical financial information refers to South32 on a consolidated basis.

The South32 pro forma historical financial information in Section 10 is presented in an abbreviated form and does not contain all the disclosures required by IFRS or the
Corporations Act.

The Independent Accountant has prepared an Independent Accountant’s Assurance Report in respect of the South32 pro forma historical financial information, a copy of
which is included in Section 12. The comments made in relation to the scope and limitations in this report should be noted.

Section 10 should also be read in conjunction with the risks to which South32 is subject as set out in Section 2. All amounts disclosed in tables are expressed in millions of
US dollars and, unless otherwise noted, are rounded to the nearest million US dollars.

10.2 BASIS OF PREPARATION


The South32 pro forma historical financial information has been prepared and is intended for illustrative purposes only and addresses a hypothetical situation and therefore
does not purport to reflect the actual financial performance or the actual financial position that South32 would have obtained if South32 had operated as a standalone entity
for the periods presented. Further, the information is not necessarily indicative of the results South32 expects in future periods, for reasons including:
• South32 did not operate independently of BHP Billiton during the periods for which South32 pro forma historical financial information is presented;
• South32 pro forma historical financial information includes allocations to South32 of certain corporate expenses incurred by BHP Billiton and directly attributable to
South32;
• South32 pro forma historical financial information may not reflect the strategies or operations that South32 may have followed or undertaken had it acted as a
standalone entity rather than as part of the BHP Billiton Group;
• the financing arrangements under which South32 operated during the periods presented do not reflect the anticipated financing arrangements of South32 following the
Demerger;
• the application of tax laws in relation to the assets and operations of South32 under BHP Billiton ownership may not reflect the application of tax laws to South32.
This will include the tax consequences of tax elections that may be made by South32, including, but not limited to, the formation and operation of South32’s own
Australian tax consolidated group. Taxation expense reflects the tax charges recorded in the underlying income statements of South32 which have been affected by the
tax sharing arrangements within BHP Billiton and are not necessarily representative of the tax charges that would have been reported had South32 been an
independent group throughout the relevant periods;
• South32 may have been exposed to different risks had it operated as a standalone entity rather than as part of BHP Billiton.

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The South32 pro forma historical financial information which is the responsibility of the South32 Directors has been derived from, and should be read in conjunction with,
the historical combined financial information of South32 contained in Annexures 1 and 2.

South32’s pro forma historical financial information has been prepared in accordance with:
• the recognition and measurement principles prescribed in IFRS, except that these standards do not provide for the preparation or reporting of pro forma financial
information;
• accounting policies including the basis of preparation adopted by South32 as set out in note 1 Accounting policies to the historical combined financial information in
Annexures 1 and 2;
• items 1 to 6 of Annex II of the Commission Regulation 809/2004/EC (the UK Prospectus Directive Regulation).

The summary pro forma historical consolidated income statements and consolidated cash flow statements have been prepared on the basis that South32 moved to joint
control of the Manganese Business and the impact of the Demerger (including adjustments to reflect the reversal of intercompany net financing costs and dividends), as if
they had occurred at 1 July 2013. Historically, financial results of the Manganese Business have been included on a consolidated basis with recognition of a non-controlling
interest. In contemplation of the Demerger, BHP Billiton and Anglo American Plc agreed to make certain changes to the agreement that governs their interests in the
Manganese Business. For accounting purposes, BHP Billiton and Anglo American Plc are taken to share joint control of the Manganese Business from 2 March 2015.
South32 has discontinued consolidation of the Manganese Business and accounts for its equity interest as an equity accounted joint venture.

No pro forma adjustments have been made to South32’s pro forma historical consolidated income statements or cash flow statements to reflect the anticipated additional
corporate overhead costs or savings of South32 operating as a standalone entity (refer to Section 11.2(d)), as compared to the corporate costs while South32 formed part of
the BHP Billiton Group in accordance with the Commission of the European Communities’ Commission Regulation 809/2004/EC Prospectus Directives regulations in the
United Kingdom for the preparation of pro forma financial statements. Discussion of these additional corporate overhead costs is contained in Section 11.2(d) (as footnote
(a) to Table 11.7).

The pro forma historical consolidated cash flow statements in Section 10 have been presented to net operating cash flows before financing activities and tax and after capital
expenditure, as following the Demerger, South32’s cash flows could be significantly altered due to a different tax and financing profile as a result of South32 operating on a
standalone basis.

The South32 pro forma historical consolidated balance sheet has been prepared on the basis that the Demerger was effected and completed on 31 December 2014 and that the
South32 assets and liabilities have been transferred from BHP Billiton to South32 at their historical book value on a consolidated basis with pro forma adjustments made to
reflect:
• the move to joint control of the Manganese Business referred to above as if it had occurred on 31 December 2014;
• settlement of intercompany balances between South32 and BHP Billiton through the issue of South32 Shares to South32 Shareholders in conjunction with cash
settlements;
• tax adjustments that reflect the exit of relevant South32 entities from the BHP Billiton tax consolidated groups on preparation for and implementation of the Demerger
and subsequent formation of the South32 tax consolidated group; and
• Demerger set up costs to be incurred by South32 after the Demerger takes effect.

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10.3 SOUTH32 SUMMARY PRO FORMA HISTORICAL CONSOLIDATED INCOME STATEMENTS


The South32 summary pro forma historical consolidated income statements for H1 FY2015 and FY2014 are as follows:

Table 10.1: South32 summary pro forma historical consolidated income statements

US$M H1 FY2015 FY2014


Revenue 4,089 8,344
Other income 150 269
Expenses excluding net finance costs (3,550) (8,338)
Share of operating profit of equity accounted investments(a) 35 62
Profit from operations 724 337
Net finance costs 5 (187)
Taxation expense (423) (47)
Profit after taxation 306 103
Basic earnings per share (US cents)(b) 5.75 1.93
Other financial information
Profit from operations 724 337
Earnings adjustments(c) to derive Underlying EBIT (76) 323
Underlying EBIT(c) 648 660
Depreciation and amortisation 417 823
Underlying EBITDA(c) 1,065 1,483
Profit after taxation 306 103
Earnings adjustments after taxation 136 343
Underlying Earnings(c) 442 446
Underlying basic earnings per share (US cents)(b) 8.30 8.38

(a) The share of operating profit of equity accounted investments includes the Manganese Business operations which were previously consolidated.
(b) The number of shares used for the purpose of calculating earnings per share is 5,324 million. (c) Underlying Earnings, Underlying EBIT and Underlying EBITDA are
defined in Section 3.5.

See Section 3.2 of Annexure 3 for the reconciliation of the pro forma adjustments made to the South32 pro forma historical consolidated income statement.

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10.4 SOUTH32 SUMMARY PRO FORMA HISTORICAL CONSOLIDATED CASH FLOW STATEMENTS BEFORE FINANCING ACTIVITIES AND TAX
AND AFTER CAPITAL EXPENDITURE
The South32 summary pro forma historical consolidated cash flow statements before financing activities and tax and after capital expenditure for H1 FY2015 and FY2014
are as follows:

Table 10.2: South32 summary pro forma historical consolidated cash flow statements before financing activities and tax and after capital expenditure

US$M H1 FY2015 FY2014


Profit from operations 724 337
Other non-cash items 445 1,129
Profit from equity accounted investments (35) (62)
Change in working capital (205) 15
Cash generated from operations 929 1,419
Dividends received (including equity accounted investments) 131 206
Capital expenditure (317) (590)
Net operating cash flows before financing activities and tax and after capital expenditure 743 1,035

See Section 3.4 of Annexure 3 for the reconciliation of the pro forma adjustments made to the South32 pro forma historical cash flow statements.

Following the Demerger, South32, operating as a standalone entity, will incur additional ongoing corporate and financing costs and benefit from savings from the
implementation of the regional organisational model (refer to Section 11.2(d)). Adjustments have not been made to reflect the impacts of these items and the impacts of
financing costs and taxation across the historical periods presented as South32’s corporate and operating structure, financing facilities, tax arrangements and capital structure
following the Demerger may be significantly different to the arrangements in place during the periods presented.

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10.5 SOUTH32 PRO FORMA HISTORICAL CONSOLIDATED BALANCE SHEET


The following table sets out South32’s pro forma historical consolidated balance sheet as at 31 December 2014. For the purpose of presenting the pro forma historical
consolidated balance sheet, it has been assumed that the Demerger was effected and completed on 31 December 2014.

Table 10.3: South32 pro forma historical consolidated balance sheet

Change of control in
Manganese Business
South32
combined Inter-
balance Removal company South32
sheet of con- Equity settlement South32 Pro forma
31 December solidated accounted and debt set up Tax con- 31 December
US$M 2014(a) balances(b) interest(c) draw down(d) costs(e) solidation(f) 2014
ASSETS
Current assets
Cash and cash equivalents 459 (43) — 59 (111) — 364
Trade and other receivables 1,098 (139) — — — — 959
Receivable from BHP Billiton 9,508 (295) — (9,213) — — —
Receivable from related party — — 60 — — — 60
Other financial assets 15 — — — — — 15
Inventories 1,406 (382) — — — — 1,024
Current tax assets 107 — — — — — 107
Other 37 (11) — — — — 26
Total current assets 12,630 (870) 60 (9,154) (111) — 2,555
Non-current assets
Trade and other receivables 185 (4) — — — — 181
Receivables from related party — — 240 — — — 240
Other financial assets 508 (158) — — — — 350
Investments accounted for using the equity method 13 — 3,027 — — — 3,040
Inventories 60 — — — — — 60
Property, plant and equipment 12,220 (1,907) — 18 22 — 10,353
Intangible assets 290 (74) — 90 — — 306
Deferred tax assets 801 (43) — — — (174) 584
Other 16 — — — — — 16
Total non-current assets 14,093 (2,186) 3,267 108 22 (174) 15,130
Total assets 26,723 (3,056) 3,327 (9,046) (89) (174) 17,685

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Change of control in
Manganese Business
South32
combined Inter-
balance Removal company South32
sheet of con- Equity settlement South32 Pro forma
31 December solidated accounted and debt set up Tax con- 31 December
US$M 2014(a) balances(b) interest(c) draw down(d) costs(e) solidation(f) 2014
LIABILITIES
Current liabilities
Trade and other payables 1,232 (228) — — — — 1,004
Payable to BHP Billiton 41 (2) — (39) — — —
Interest bearing liabilities 136 (4) — 150 — — 282
Other financial liabilities 6 — — — — — 6
Current tax payables 104 (30) — — (23) 28 79
Provisions 413 (52) — — — — 361
Deferred income 4 (1) — — — — 3
Total current liabilities 1,936 (317) — 111 (23) 28 1,735
Non-current liabilities
Trade and other payables 34 — — — — — 34
Interest bearing liabilities 877 (135) — — — — 742
Interest bearing liabilities payable to BHP Billiton 3,728 — — (3,728) — — —
Other financial liabilities 18 — — — — — 18
Deferred tax liabilities 569 (26) — — — 127 670
Provisions 2,010 (478) — — — — 1,532
Deferred income 4 — — — — — 4
Total non-current liabilities 7,240 (639) — (3,728) — 127 3,000
Total liabilities 9,176 (956) — (3,617) (23) 155 4,735
Net assets 17,547 (2,100) 3,327 (5,429) (66) (329) 12,950
INVESTED CAPITAL
Invested capital attributable to members of South32 16,710 (1,263) 3,327 (5,429) (66) (329) 12,950
Invested capital attributable to non-controlling interests 837 (837) — — — — —
Total invested capital 17,547 (2,100) 3,327 (5,429) (66) (329) 12,950

(a) South32’s historical combined balance sheet has been extracted, without material adjustment from the historical combined financial information in Annexure 2 (refer
to discussion in Section 10.8(a) for transfer of assets and liabilities at existing book value).
(b) Pro forma adjustment has been made to reflect the loss of control and subsequent de-consolidation of the Manganese Business assuming the changes to the joint
venture agreement were effective 31 December 2014. This information has been extracted, without material adjustment from the underlying accounting records of
South32.

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(c) This adjustment represents the fair value of the equity accounted investment in the Manganese Business as at 2 March 2015 the date the change of control became
effective and as disclosed in note 10 Subsequent events of Annexure 2.
(d) This adjustment represents the settlement of net intercompany balances sourced from the South32 historical combined balance sheet (less the Manganese Business),
the transfer of property, plant and equipment of US$18 million and intangible assets of US$90 million relating to the capital spend incurred by BHP Billiton on
information technology infrastructure and corporate facilities for South32. The settlement of net intercompany receivables with BHP Billiton of US$5,446 million
(current receivables of US$9,213 million, current payables of US$39 million and non-current interest bearing liabilities payable of US$3,728 million) will be by a
return of South32 capital of US$5,429 million and cash settlements. The cash settlement amount of US$59 million is calculated to provide South32 with a target net
cash and interest bearing liabilities position and assumes an indicative drawdown of US$150 million from available debt facilities.
(e) The adjustment made to cash reflects South32 set up costs associated with the Demerger to be incurred by South32 after the Demerger. These totals primarily include
information technology set up costs and relocation costs as well as costs incurred under transitional service arrangements but exclude debt establishment fees.
(f) As a consequence of the Demerger, South32 is required by Australian tax legislation to exit BHP Billiton’s existing Australian tax consolidated groups and re-
consolidate in its own, new Australian tax consolidated group. As a result, certain deferred tax assets will reduce due to the resetting of the tax bases of certain
tangible and intangible assets. It is expected that there will be a step down in the South32 cost base for income tax and/or capital gains tax of US$1,460 million that
results in a reduction in South32’s deferred tax assets of US$174 million, a deferred tax liability of US$127 million and a current tax liability of US$28 million. The
pro forma adjustment is based on the South32 Directors’ best estimate of the value of tax cost bases at the effective date of the tax consolidation. Refer to
Section 10.8(e) for more details.

10.6 DEBT FACILITIES


Prior to the Demerger, the South32 Group was funded by a combination of internal cash flows, working capital facilities and intercompany loans provided by BHP Billiton
which have been funded by a combination of cash and short and long-term debt.
If the Demerger proceeds, ongoing funding for the South32 Businesses is expected to be provided in the same way, a combination of cash generated by the South32
Businesses, working capital facilities and intercompany loans provided by South32 which may be funded by a combination of cash, short and long-term debt and equity
market raisings.
As at the date of this document, a new multicurrency revolving syndicated loan facility (Facility) has been executed by all parties and the Facility is committed subject to
various conditions being satisfied, including those summarised below.
At the time the Demerger is implemented, South32 will have access to the Facility which may be used to fund its opening cash position.
The Facility contains market standard terms and conditions for a facility agreement of this nature. The key terms of the Facility are as follows:

Table 10.4: Facility summary

Facility type Multicurrency revolving syndicated facility.


Currencies US dollar or optional currencies, including Australian dollar and Euro.
Commitments Commitment Maturity date
and maturities US$1.5 billion Five years after the date of the agreement plus two one-year extension options for those lenders
which agree to extend.
Applicable Base rate plus a margin which has been agreed at current commercial rates.
interest rates
The applicable base rates include:
• LIBOR for a loan in US dollars;
• BBSW for a loan in Australian dollars;
• EURIBOR for a loan in Euros.
Conditions precedent The Facility contains conditions precedent to initial drawdown that are customary for a facility of this nature and other conditions precedent
to initial drawdown which relate to the implementation of the Demerger and listing of South32 on the ASX.
Events of default The Facility contains customary events of default including, but not limited to, payment default, breach of representation, breach of financial
covenant and cross-default.
Mandatory The Facility includes customary mandatory prepayment and cancellation events, including a change of control provision which in certain
prepayment and circumstances allows a lender to cancel its commitments under the Facility and require full prepayment of amounts outstanding under the
cancellation events Facility.
Covenants The Facility contains a single financial covenant and undertakings which are customary for a facility of this nature including, but not limited to,
provision of information, negative pledge and restrictions on subsidiary indebtedness and disposals of assets.
Security None.
Guarantee Each borrower under the agreement is a guarantor in respect of the obligation of each other borrower which is a subsidiary of it.

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10.7 PRO FORMA NET INDEBTEDNESS SUMMARY


The following table sets out South32’s pro forma historical summary of net indebtedness as at 31 December 2014 extracted from the South32 pro forma historical
consolidated balance sheet set out in Section 10.5. For the purpose of presenting this information, it has been assumed that the Demerger was effected and completed on
31 December 2014.

Table 10.5: Pro forma net indebtedness summary

31 December
US$M 2014
Cash(a) (343)
Cash equivalents (7)
Liquidity(b) (350)
Current bank debt 271
Other current financial debt(c)(d) 11
Current financial debt 282
Net current financial indebtedness (68)
Non-current loans(d) 742
Non-current financial indebtedness 742
Net financial indebtedness(e)(f) 674

(a) Excludes US$14 million cash that is restricted by legal or contractual arrangements.
(b) Liquidity includes cash and cash equivalents. It does not include undrawn amounts under available facilities.
(c) Other current financial debt includes finance leases and unsecured other borrowings.
(d) Includes total finance leases of US$680 million.
(e) Net financial indebtedness does not include the fair value of South32’s derivatives.
(f) Excludes receivables from related parties.

10.8 ACCOUNTING JUDGEMENTS AND ESTIMATES


The preparation of South32’s financial information requires management to make estimates and judgements that affect the reported amounts of assets and liabilities and the
reported revenue and expenses during the periods presented therein. On an ongoing basis, management evaluates its estimates and judgements in relation to assets, liabilities,
contingent liabilities, revenue and expenses. Management bases its estimates and judgements on historical experience and on various other factors it believes to be reasonable
under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions and conditions.

In accordance with IFRS, South32 is required to include information regarding the nature of the estimates and judgements and potential impacts on its financial results or
financial position in the financial information. This information can be found in note 1 Accounting policies to the historical combined financial information in Annexure 1.

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The most important of these estimates and judgements are set out in the following subsections:
(a) Accounting for internal restructure
During FY2015, the Internal Restructure took place in preparation for the listing of South32. This resulted in South32 Limited (formerly BHP Coal Holdings Pty Limited)
becoming the legal parent of the South32 Group. The South32 Directors elected to account for the restructure at pre-existing book values. In the South32 Directors’
judgement, the continuation of the existing accounting values is consistent with the accounting that would have occurred if the assets and liabilities had already been in a
structure suitable to list and most appropriately reflects the substance of the Internal Restructure. As such, the historical combined financial information of South32 has been
presented as a continuation of the pre-existing accounting values of assets and liabilities in BHP Billiton’s financial statements. In adopting this approach the South32
Directors note that there is an alternate view under which such a restructure is accounted for at fair value. An IASB project on accounting for common control transactions is
likely to address such restructures in the future. However, the precise nature of any new requirements and the timing of these are uncertain.
(b) Equity accounted investment in Manganese Business
In contemplation of the Demerger, BHP Billiton and Anglo American Plc agreed on 19 August 2014 (subject to receiving necessary regulatory approvals which were
obtained on 2 March 2015) to make certain changes to the agreement which governs their interest in the Manganese Business. As a result of these changes, BHP Billiton will
discontinue consolidation of the Manganese Business and account for its equity interest as an equity accounted joint venture. This will result in the equity accounted
investment being remeasured at fair value of approximately US$3 billion. This value is significantly higher than the historical book value and accordingly increases the
potential risk of impairment in the future. The determination of fair value, and so recoverable amount of the investment, requires significant judgement and relies on future
estimates.
(c) Closure and rehabilitation provisions
Closure planning is a key consideration in the planning and development of South32’s projects and operations. Operations are required to maintain closure plans, which
describe the proposed methods to rehabilitate and remediate following resource development and also address closure obligations. The closure plans provide the basis for
estimating the closure costs and the associated accounting for closure and rehabilitation provisions.

Mining, extraction and processing activities normally give rise to obligations for site closure or rehabilitation. In accordance with South32’s accounting policies, provisions
have been created for all known closure and rehabilitation liabilities at the time that environmental disturbance occurs. When the extent of the disturbance increases over the
life of an operation, the provision is increased accordingly. Closure and rehabilitation provisions are measured at the expected value of future cash flows, discounted to their
present value and determined according to the probability of alternative estimates of cash flows occurring for each operation. Discount rates used are specific to the country
in which the operation is located. Significant judgements and estimates are involved in forming expectations of future activities and the amount and timing of the associated
cash flows.

There can be no assurance that new information or regulatory requirements with respect to known sites or the identification of new remedial obligations at other sites will not
require additional future provisions for remediation and such provisions could be material. In addition to the uncertainties noted above, certain closure and rehabilitation
activities are subject to legal disputes and depending on the ultimate resolution of these issues, the final liability for these matters could vary.

The following table sets out South32’s pro forma closure and rehabilitation provisions as at 31 December 2014, which have been adjusted for the de-consolidation of the
Manganese Business.

Table 10.6: South32 pro forma closure and rehabilitation provision overview(a)

US$M 31 December 2014


Open mines 85
Closed mines 45
Current 130
Open mines 1,119
Closed mines 293
Non-current 1,412
Total 1,542

(a) Refer to Sections 2.4(b) and 2.5(a)(2) for more details on closure provisions.

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(d) Pro forma contingent liabilities


In the normal course of business, contingent liabilities may arise from general legal proceedings, from guarantees or from closure and rehabilitation obligations connected
with current or former sites. Where South32 considers that potential liabilities have a low probability of crystallising or it is not possible to quantify them reliably, they are
disclosed as contingent liabilities. These are not provided for in the historical combined financial information but are disclosed in the notes to the historical combined
financial information as follows:
Table 10.7: Pro forma contingent liabilities at balance date, not otherwise provided for in the pro forma historical consolidated balance sheet, are categorised as
arising from:

31 December Pro forma 31 December


US$M 2014(a) adjustments(b)(c) 2014 pro forma
Associates and joint ventures
Bank guarantees — 4 4
Actual or potential litigation(d) — 44 44
Other — 15 15
Total associates and joint ventures — 63 63
Subsidiaries and joint operations
Bank guarantees 6 (6) —
Actual or potential litigation(d) 653 (72) 581
Other 26 35 61
Total subsidiaries and joint operations 685 (43) 642
Total contingent liabilities 685 20 705

(a) South32’s contingent liabilities have been extracted, without material adjustment from the historical combined financial information in Annexure 2 note 9 contingent
liabilities.
(b) A pro forma adjustment has been made to reflect the loss of control and subsequent de-consolidation of the Manganese Business assuming the changes to the
shareholder agreement were effective 31 December 2014. This column reverses the full amount of the Manganese Businesses contingent liabilities under the heading
‘Subsidiaries and joint operations’ and brings in South32’s equity share under the heading ‘Associates and joint ventures’. This information has been extracted,
without material adjustment from the underlying accounting records of South32.
(c) An adjustment is made to include potential liability that may arise from the Internal Restructure in preparation for the Demerger.
(d) Actual or potential litigation amounts relate to a number of actions against South32 associates and joint ventures and subsidiaries and joint operations, some of which
relate to commercially confidential information, and where South32 has assessed that the liability is not probable South32 has not provided for such amounts in the
pro forma historical consolidated balance sheet. South32 is indemnified by BHP Billiton for certain of the above contingent liabilities that are subject to actual or
potential litigation. The actual or potential litigation relates primarily to numerous tax assessments or matters arising from tax audits relating to transactions in prior
years in Brazil, Colombia and South Africa. Additionally, there are a number of legal claims or potential claims against South32, its subsidiaries or joint operations the
outcome of which cannot be foreseen at present, and for which no amounts have been included in the table above.
(e) Tax consolidated group
Following the Demerger, South32 will form a new Australian tax consolidated group. Certain deferred tax balances will increase or decrease as the South32 Businesses exit
the tax consolidated groups existing under BHP Billiton and tax cost bases of certain tangible and intangible assets are reset upon formation of the South32 tax consolidated
group. It is expected that there will be a step down in the South32 tax cost base for income tax and/or capital gains tax purposes of US$1,460 million that results in a
corresponding reduction in South32’s deferred tax asset of US$174 million, a deferred tax liability of US$127 million and a current tax liability of US$28 million. These
impacts are estimates and may vary subject to measurement of the tax cost bases when this is finalised post Demerger. The extent to which deferred tax balances must be
recognised upon the tax consolidation of South32 will depend on a number of factors and assumptions, including the actual market value of South32 at the date of the tax
consolidation.

10.9 TAXATION
Certain South32 Businesses operating in Australia currently pay tax as part of BHP Billiton’s group taxation arrangements. As a standalone entity, the effective tax rate of
South32 may vary from what it would have been if South32 remained part of BHP Billiton.

South32 Businesses operate in a number of countries with differing tax rates. For the 12 months to 30 June 2014, 68 per cent of the pro forma Underlying EBIT from
operations of South32 was derived from Australia (standard current corporate tax rate of 30 per cent) and 20 per cent from South Africa (standard current corporate tax rate
of 28 per cent). The remainder of South32’s Underlying EBIT was derived from other countries with various tax rates.

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11 OPERATING AND FINANCIAL REVIEW AND PROSPECTS


11.1 INTRODUCTION
The following operating and financial review is intended to convey the South32 Directors’ perspective on South32’s operating performance and its financial condition. The
South32 Directors intend this disclosure to assist readers in understanding and interpreting the historical combined financial information set out in Annexures 1 and 2 and
summarised in Section 9, which include the South32’s historical combined financial information for FY2014, FY2013 and FY2012 and historical combined financial
information for H1 FY2015 and H1 FY2014, respectively.

The basis of preparation of the historical combined financial information is set out in the ‘Basis of preparation of historical combined financial information’ in note 1
Accounting policies in Annexures 1 and 2.

Investors should read Section 11 in conjunction with the risk factors in Section 2, South32 Business descriptions in Section 7 and the historical combined financial
information set out in Section 9 and Annexures 1 and 2 and the other information included in this document, and should not rely solely on key or summarised information.

South32 uses a number of non-IFRS financial measures in addition to those reported in accordance with IFRS. The South32 Directors believe that these non-IFRS measures,
as set out in Section 3.5, are important when assessing the underlying financial and operating performance of South32 and each of the South32 Businesses set out in
Section 7.1.
(a) Overall financial performance
South32 uses several financial measures to monitor the financial performance of its business. The two key measures are Underlying Earnings for South32 as a whole and
Underlying EBIT for the performance of the individual South32 Businesses.

Table 11.1: Summary historical combined financial information

6 months 12 months
ended December ended June
US$M except where stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Combined income statement
Revenue 5,040 5,348 10,444 12,093 13,835
Profit/(loss) from operations 1,251 554 774 (963) 2,060
Attributable profit/(loss) 688 317 132 (1,467) 1,401
Basic earnings/(loss) per share (US cents) 12.92 5.95 2.48 (27.55) 26.31
Other financial measures
Net operating cash flows 1,249 493 1,670 1,426 2,393
Underlying EBITDA 1,306 976 2,055 2,118 2,831
Underlying EBITDA margin 27.5% 20.7% 22.1% 19.7% 23.8%
Underlying EBIT 800 510 1,070 1,154 1,926
Underlying EBIT margin 16.6% 10.5% 11.3% 10.5% 16.0%
Underlying Earnings 534 369 614 755 1,258

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(b) Production
A summary of South32’s actual production volumes for H1 FY2015, H1 FY2014, FY2014, FY2013 and FY2012 is shown below. Further details are set out in Section 7.

Table 11.2: Summary of South32’s actual production volumes

6 months 12 months
ended December ended June
H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Alumina (kt)
Worsley Alumina 1,953 1,970 3,916 3,675 2,917
Brazil Aluminium 680 633 1,262 1,205 1,235
Aluminium (kt)
South Africa Aluminium(a) 356 415 804 761 719
Mozal Aluminium 135 134 266 264 264
Brazil Aluminium 26 63 104 154 170
Energy coal (kt)
South Africa Energy Coal(b) 16,525 14,973 30,384 31,627 33,279
Illawarra Metallurgical Coal 880 741 1,539 1,278 1,305
Metallurgical coal (kt)
Illawarra Metallurgical Coal 3,858 2,614 5,974 6,664 6,621
Manganese ore (kt)
Australia Manganese 2,499 2,438 4,776 5,027 4,306
South Africa Manganese(c) 2,056 1,808 3,526 3,490 3,625
Manganese alloy (kt)
Australia Manganese 139 123 269 234 198
South Africa Manganese(c)(d) 233 180 377 374 404
Nickel (kt)
Cerro Matoso 21 24 44 51 49
Lead (kt)
Cannington 99 94 187 213 239
Zinc (kt)
Cannington 37 32 58 56 55
Silver (koz)
Cannington 12,235 12,667 25,161 31,062 34,208

(a) Aluminium smelting at Bayside ceased with the closure of the final potline in June 2014.
(b) Shown on 100 per cent basis. South32’s interest in saleable production is 90 per cent.
(c) Shown on 100 per cent basis. South32’s interest in saleable production is 60 per cent except production of ore at Hotazel Mines, South Africa where South32’s interest
is 44.4 per cent.
(d) Production includes MCFeMn.

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11.2 EXTERNAL FACTORS AND TRENDS AFFECTING SOUTH32’S RESULTS


Section 11.2 describes some of the external factors and trends that have had a material impact on South32’s financial condition and results of operations. Details of South32’s
risk factors can be found in Section 2 and in note 23 Financial risk management to the historical combined financial information contained in Annexure 1.

Management monitors particular trends arising from external factors with a view to managing the potential impact on South32’s future financial condition and results of
operations.
(a) Commodity prices
The prices South32 obtains for its products is a key driver of its business, and fluctuations in these commodity prices affect its results, including cash flows and asset values.
The estimated impact on Underlying EBIT for FY2014 of changes to commodity prices is set out below:
Table 11.3: Commodity price sensitivity summary

Estimated impact on FY2014 Underlying EBIT of change of: US$M


US$5/t on alumina price 26
US$20/t on aluminium price 24
US$1/t on metallurgical coal price 6
US$1/t on energy coal price 15
US¢5/dmtu on manganese ore price 19
US$10/t on manganese alloy price 7
US$150/t on nickel price 7
US$20/t on lead price 4
US$20/t on zinc price 1
US¢20/oz on silver price 5

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The following table shows prices of South32’s most significant commodities for H1 FY2015, H1 FY2014, FY2014, FY2013 and FY2012. These prices represent quoted
prices from the relevant sources as indicated. These prices differ from the realised prices on the sale of South32’s production due to contracts to which South32 is a party,
differences in quotational periods, quality of products, delivery terms and the range of quoted prices that are used for contracting sales in different markets.

Table 11.4: Quoted commodity prices

6 months 12 months
ended December ended June
H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Alumina(a) (US$/t)
Average 338 320 321 327 334
Closing 355 333 312 318 305
Aluminium (LME cash) (US$/t)
Average 1,975 1,774 1,764 1,938 2,168
Closing 1,831 1,765 1,851 1,731 1,835
Metallurgical coal(b) (US$/t)
Average 110 141 128 159 239
Closing 110 132 111 130 222
Energy coal(c) (US$/t)
Average 68.00 78.01 77.48 84.66 105.56
Closing 65.13 85.05 73.88 74.18 87.71
Manganese ore(d) (US$/dmtu)
Average 4.34 5.21 4.95 5.29 4.90
Closing 4.32 5.08 4.20 5.54 5.06
Manganese alloy(e) (US$/t)
Average 940 1,000 1,020 1,106 1,177
Closing 873 1,027 999 1,038 1,160
Nickel (LME cash) (US$/t)
Average 17,218 13,911 15,168 16,380 19,335
Closing 14,925 13,977 18,717 13,691 16,469
Silver(f) (US$/oz)
Average 18.14 21.07 20.57 28.97 33.26
Closing 15.97 19.50 20.87 18.86 27.08
Lead(g) (US$/t)
Average 2,091 2,107 2,104 2,134 2,128
Closing 1,853 2,206 2,129 2,058 1,796
Zinc(h) (US$/t)
Average 2,273 1,884 1,967 1,928 2,019
Closing 2,167 2,085 2,205 1,823 1,843

(a) Platts PAX FOB Australia – market price assessment of calcined metallurgical/smelter grade alumina.
(b) Platts Low-Vol Hard Coking Coal Index FOB Australia – representative of high-quality hard coking coals.
(c) RBCT FOB (API 4).
(d) Metal Bulletin manganese ore 44 per cent Mn China, except for FY2012 which was CRU CIF China import 43 per cent contained manganese.
(e) Bulk FerroAlloy HCFeMn Western Europe DDP.
(f) Daily LBMA Silver Fixing Prices.
(g) Lead Settlement Daily Official US dollars per tonne monthly average.
(h) Zinc Settlement LME Daily Official US dollars per tonne monthly average.

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The following summarises the pricing trends of South32’s most significant commodities for H1 FY2015, FY2014 and FY2013 and significant trends.

During FY2014, commodity markets saw some support from a modest improvement in global economic activity, though economic growth was uneven across different
regions. The United States and Japan saw underlying momentum increase, but emerging economies, notably China, saw economic growth slow.
During FY2013, commodity markets were impacted by a slower pace of economic growth in China that was balanced in part by increased stability in European sovereign
debt markets and an improved private sector performance in the United States. The metals commodities attracted lower prices than the previous year as a result of supply
growing faster than demand.

(1) Alumina
The Platts FOB Australia average alumina price increased by six per cent over the first half of FY2015 compared to the first half of FY2014. The alumina market was
supported by strong Chinese demand, ramp-ups of newly commissioned smelters in Northwest China, and the ban on bauxite ore exports from Indonesia.
The Platts FOB Australia average price decreased by two per cent during FY2014. Although demand grew, driven by the commissioning of new smelters in China,
increasing supply outpaced the growth in demand.
The Platts FOB Australia average alumina price decreased by two per cent during FY2013, with price support coming from increasing demand and supply disruptions
during the year. The market remained balanced, with refinery production continuing to grow in China.

(2) Aluminium
The London Metal Exchange (LME) average aluminium cash settlement price increased by 11 per cent in the first half of FY2015 compared to the first half of
FY2014. This reflects the improved fundamentals of the market, with demand growth strengthening and supply responses to lower prices having an effect.
The LME aluminium average cash settlement price decreased by nine per cent during FY2014. Demand continued to increase, but new supply offset the curtailment
of high-cost capacity. Delays in implementing changes to LME warehouse rules contributed to record high regional premiums ex-China as inventories were
constrained by warehouse queues.
The LME aluminium average cash settlement price decreased by 11 per cent during FY2013. Demand growth slowed, while simultaneously new supply continued to
be added, which contributed to an increasing market surplus. During this period, LME stocks reached record levels, driven by the attractiveness of warehouse
financing deals to investors.

(3) Metallurgical coal


The Platts Low-Vol Hard Coking Coal Index average price for the first half of FY2015 decreased by 22 per cent compared to the first half of FY2014. The price
decrease was underpinned by continuing seaborne supply growth. Demand from traditional markets remained positive, whilst Chinese seaborne demand decreased
due to intense competition with domestic coking coal supply.
The average Platts Low-Vol Hard Coking Coal Index decreased by 19 per cent during FY2014. While demand from traditional markets recovered steadily, the price
decrease was mainly driven by continuing supply growth from Australia. The year-end price was 13 per cent lower than the average price for the year.
The average Platts Low-Vol Hard Coking Coal Index decreased by 33 per cent during FY2013, driven by decreased growth rates of global pig iron production. Pig
iron production decreased in Europe, which historically accounts for a large share of hard coking coal import demand. Supply increased during the year, particularly
from Australia and Canada.

(4) Energy coal


The Richards Bay FOB average price for thermal coal for the first half of FY2015 decreased by 13 per cent compared to the first half of FY2014. The price decrease
was driven by moderating demand growth with strong growth from India offset by China, coupled with healthy supply from Australia and Indonesia.
The Richards Bay Coal Terminal FOB average price decreased by eight per cent during FY2014. The decrease was driven by weaker import demand growth from
India and China, coupled with supply growth from Australia, Russia and Indonesia.
The Richards Bay Coal Terminal FOB average price decreased by 20 per cent during FY2013. Seaborne demand growth was driven by China and India, where
volumes reached all-time record levels. Prices decreased as Indonesian, Australian and United States exports increased simultaneously.

(5) Manganese
The Metal Bulletin manganese ore China CIF average price decreased by 17 per cent during the first half of FY2015 compared to the first half of FY2014. Demand growth
slowed, while South African and Australian supply increased amidst higher Chinese inventory levels. The Western Europe spot HCFeMn average manganese alloy price
decreased by six per cent during the first half of FY2015, driven by persistent oversupply and the currency depreciation of major producers in India, Australia, South Africa
and Europe.

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The Metal Bulletin manganese ore China CIF average price decreased by six per cent during FY2014. Demand growth slowed, while South African supply increased
amid higher Chinese inventory levels. The Western Europe spot HCFeMn average alloy price decreased by eight per cent during FY2014. Weaker alloy prices led to
decreased production in South Korea and the United States.
The Metal Bulletin manganese ore China CIF average price increased by eight per cent during FY2013 compared to the CRU China manganese ore average import
price in FY2012. Rising ore prices in the second half of FY2013 were supported by record Chinese steel output, while supply from South Africa, Australia and Gabon
increased to meet the higher demand. The Western Europe spot HCFeMn average alloy price decreased six per cent during FY2013. Declining alloy prices were
driven by oversupply in a weak export market due to lower steel production in the developed economies of Europe and the United States.

(6) Nickel
The average LME nickel cash settlement price increased by 24 per cent for the first half of FY2015 compared to the first half of FY2014 as a result of the Indonesian
ore export ban impacting supply. However, the price at 31 December 2014 decreased by 20 per cent from the 30 June 2014 price, as overall the market remained well
supplied as evidenced by rising LME stocks.
The average LME cash settlement nickel price decreased by seven per cent during FY2014. Increased supply growth coming mainly from Chinese nickel pig iron and
new production from greenfield projects was greater than demand growth in the first half of the year. The price increase in the second half of the year was driven by
decreased low-cost supply due to an ore export ban imposed in Indonesia, which is one of the largest global suppliers. Demand growth increased, supported by a
recovery in stainless steel production in Europe and the United States. The year-end price was 23 per cent higher than the average price for the year.
The average LME cash settlement nickel price decreased by 15 per cent during FY2013. Demand for nickel continued to grow, but at a lower rate compared with that
for the previous year. The price decreased as a result of the demand growth being outpaced by increasing supply tonnages, coming mainly from Chinese nickel pig
iron, as well as new production from greenfield projects.

(7) Silver
The average daily LBMA silver price for the first half of FY2015 dropped 14 per cent compared to the first half of FY2014 as demand fell through this period.
During FY2014, the average daily LBMA Silver Fixing Price decreased by 29 per cent, with monthly averages spending the year consistently above US$19 per ounce.
There was no significant imbalance in supply and demand, with price movements driven primarily by investors.
There was a general downtrend in the average daily LBMA Silver Fixing Price during FY2012 and FY2013. During FY2013, there was no significant imbalance in
supply and demand; however, the average price fell by 13 per cent.

(8) Lead
The average Lead Settlement Daily Official price for the first half of FY2015 decreased by one per cent compared to the first half of FY2014 with the market
remaining well supplied as the growth in consumption was met with increased supply.
The average Lead Settlement Daily Official price decreased by one per cent in FY2014. The market remained finely balanced, as shown by the lack of change in
price.
The average Lead Settlement Daily Official price traded, from a monthly average high of US$2,683 per tonne to a lower range between US$1,800 per tonne to
US$2,200 per tonne during FY2012. This movement was driven by investor concerns regarding the state of the European economy. In FY2013, the average Lead
Settlement Daily Official price was flat.

(9) Zinc
The average Zinc Settlement LME Daily Official price for the first half of FY2015 increased by 21 per cent compared to the first half of FY2014 as the refined market
was in deficit with supply unable to keep up with rising demand.
In FY2014, the average Zinc Settlement LME Daily Official price increased by two per cent. The market remained balanced for the first half of FY2014. Towards the
end of FY2014, the price increased on the back of modest demand, but with constrained growth in refined supply. Investor demand pushed this price further in
anticipation of further tightening in supply.
In FY2013, the average Zinc Settlement LME Daily Official price decreased by five per cent. The market traded at similar levels, albeit with lower volatility and with
supply and demand balanced. Day-to-day movements were dominated by macroeconomic news, investor sentiment and risk appetite rather than developments in zinc
market dynamics. The average Zinc Settlement LME Daily Official price traded over a large range in FY2012, driven primarily by investor sentiment. There was
some downward pressure due to consumption slowing in Europe and China.

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(b) Exchange rates


South32 is exposed to exchange rate risk on foreign currency sales, purchases and expenses, as no active currency hedging is in place. Because a majority of South32’s sales
are denominated in US dollars, and the US dollar plays a dominant role in its business, funds borrowed and held in US dollars provide a natural hedge to currency
fluctuations. Operating costs and costs of locally sourced equipment are influenced by fluctuations in local currencies, primarily the Australian dollar, South African rand,
Brazilian real and Colombian peso. Foreign exchange gains and losses reflected in operating costs owing to fluctuations in the local currencies relative to the US dollar may
potentially offset one another.

South32 is also exposed to exchange rate translation risk in relation to net monetary liabilities, being foreign currency denominated monetary assets and liabilities, including
debt and other long-term liabilities. Historically, the majority of South32’s monetary assets and liabilities were held in US dollars. Details of South32’s exposure to foreign
currency fluctuations are contained within note 23 Financial risk management to the historical combined financial information contained in Annexure 1.

The following table indicates the estimated impact on FY2014 Underlying EBIT of a strengthening of the US dollar against the principal currencies to which South32 is
exposed.

The sensitivities below give the estimated impact on Underlying EBIT based on the exchange rate movement in isolation. The sensitivities assume all variables except for
exchange rate remain constant. There is an inter-relationship between currencies and commodity prices where movements in exchange rates can cause movements in
commodity prices and vice versa. This is not reflected in the sensitivities below. These sensitivities should therefore be used with care.

Table 11.5: Exchange rate sensitivity summary

Estimated impact on FY2014 Underlying EBIT of strengthening US$ relative to: US$M
Australian dollar (US1 cent/A$) 30
South African rand (0.1 rand/US$) 15
Brazilian real (0.02 real/US$) 3
Colombian peso (20 peso/US$) 3
Mozambican metical (0.5 metical/US$) 1

The following table shows the average and period end exchange rates of the most significant currencies that affect South32’s results:

Table 11.6: Exchange rates

6 months 12 months
ended December ended June
H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Australian dollar(a)
Average 0.89 0.92 0.92 1.03 1.03
Closing 0.82 0.89 0.94 0.92 1.00
Brazilian real
Average 2.40 2.28 2.29 2.04 1.78
Closing 2.66 2.34 2.20 2.18 2.08
Colombian peso
Average 2,037 1,910 1,935 1,814 1,825
Closing 2,392 1,927 1,881 1,923 1,807
South African rand
Average 10.99 10.07 10.39 8.84 7.77
Closing 11.55 10.53 10.60 10.00 8.41
Mozambican metical
Average 31.32 29.92 30.63 29.56 27.36
Closing 33.33 30.01 31.55 29.80 27.95

(a) Displayed as US$ to A$1 based on common convention.

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The appreciation of the US dollar began at the start of H1 FY2015 and continued to strengthen against most currencies through the six-month period to end-December 2014.
The most significant exchange rate movements and depreciation were in the Colombian peso, the Brazilian real and the Australian dollar in order of the absolute change from
the spot at the beginning of H1 FY2015 and the spot rate at the end of H1 FY2015. The South African rand also weakened against the US dollar, but experienced slightly less
currency depreciation. The significant movements in exchange rates reflected the relative change in market sentiment towards a stronger recovery in the US economy, and
the expectations around the timing of the US Federal Reserve Bank raising interest rates in 2015, against the rising uncertainty in growth prospects in other economies.

In FY2014, the South African rand weakened throughout the year owing to the impact from disruptive labour action across many sectors of the economy amidst sluggish
global economic growth, a widening trade deficit and the SARB raising interest rates to offset inflationary pressure. The end of the financial year coincided with the end of a
five-month strike at platinum mines that had seen a rise in capital outflows amid loss in investor confidence. Overall, the Australian dollar and Colombian peso ended
FY2014 stronger against the US dollar, while the Brazilian real weakened.

In FY2013, volatility in exchange rates increased compared with that in FY2012, with a strengthening of the US dollar in the last quarter of FY2013. Overall the Australian
dollar, South African rand, Colombian peso and Brazilian real ended FY2013 weaker against the US dollar.
(c) Changes in product demand and supply
Global demand and supply for the commodities South32 produces is a key driver of commodity prices, and fluctuations in product demand and supply affect its results,
including cash flows and asset values. Information on demand and supply trends is set out in Section 6.
(d) Operating costs
As the prices for South32’s products are determined by the global commodity markets in which South32 operates, South32 does not generally have the ability to offset cost
pressures through corresponding price increases. Therefore, controlling operating costs is a key driver of South32’s results. Operating costs for the last three financial years
and the most recent two half years are set out below:

Table 11.7: Operating costs summary(a)

6 months 12 months
ended December ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Raw materials and consumables used 1,641 1,552 3,308 3,584 3,496
Employee benefits expense 721 752 1,496 1,603 1,558
External services (including transportation) 842 993 1,837 2,438 2,734
Third party commodity purchases 394 748 1,233 1,601 2,265
Net foreign exchange (gains)/losses (83) (47) (68) (97) (100)
Fair value change on derivatives (5) 16 2 16 (122)
Government royalties paid and payable 138 178 348 383 413
Depreciation and amortisation expense 506 466 985 964 905
Exploration and evaluation expenditure — 11 17 21 41
Impairment of assets — — 319 2,210 108
Operating lease rentals 38 46 94 97 96
Other operating expenses 121 191 419 391 441
Total expenses 4,313 4,906 9,990 13,211 11,835
Less earnings adjustments 87 33 (391) (2,129) 114
Total expenses included in Underlying Earnings 4,400 4,939 9,599 11,082 11,949

(a) The operating costs in this table for FY2014, FY2013 and FY2012 are extracted from the historical combined financial information. The operating costs for
H1 FY2015 and H1 FY2014 are from the underlying accounting records. They do not include additional costs of running South32 relative to those incurred by the
South32 Businesses as part of the BHP Billiton Group before the Demerger, estimated to be US$60 million (pre-tax) per annum. They also do not include any ongoing
overhead savings from implementation of South32’s regional operating model, which South32 believes will outweigh the additional costs in the near term.

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During the first half of FY2015, South32 continued to focus on curtailing operating costs that form part of Underlying Earnings. This was demonstrated by a decrease in
external services costs of US$151 million and a reduction in employee benefits expense of US$31 million compared to H1 FY2014. In addition, there was a decrease in third
party commodity purchases of US$354 million.

During FY2014, South32 focused on curtailing operating costs that form part of Underlying Earnings, demonstrated by a decrease in external services costs of US$601
million, reduced production-related expenses of US$276 million and a reduction in employee benefits expense of US$107 million. In addition, there was a decrease of third
party commodity purchases of US$368 million.

Reductions in operating costs that form part of Underlying Earnings were also noted in FY2013 through a reduction in external services of US$296 million. These savings
were partly offset by an increase in production-related expenses of US$88 million. In addition there was a decrease in third party commodity purchases of US$664 million.
(e) Capital expenditure
Capital expenditure is disclosed for each South32 Business in Table 11.8 below (presented on a cash basis):

Table 11.8: Capital expenditure summary(a)

6 months 12 months
ended December ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Capital expenditure
Worsley Alumina 27 22 56 154 900
South Africa Aluminium 10 7 28 17 14
Mozal Aluminium 5 3 8 7 9
Brazil Aluminium 5 7 9 6 12
Alumina 3 2 4 4 8
Aluminium 2 5 5 2 4
South Africa Energy Coal 58 22 65 133 162
Illawarra Metallurgical Coal 180 173 309 357 314
Australia Manganese 57 58 108 271 213
Manganese alloy 6 2 5 3 12
Manganese ore 51 56 103 268 201
South Africa Manganese 37 32 70 104 131
Manganese Alloy 9 10 17 42 58
Manganese Ore 28 22 53 62 73
Cerro Matoso 18 35 56 50 105
Cannington 14 30 60 39 73
Group and unallocated items — 5 — 1 80
Total capital expenditure 411 394 769 1,139 2,013
Exploration expenditure 13 14 24 29 51
Total 424 408 793 1,168 2,064

(a) Capital expenditure is included on a cash basis and excludes capitalised interest.

Capital expenditure encompasses expenditure on investment projects and capital expenditure on sustaining and other items.

Table 11.9: Capital expenditure

6 months 12 months
ended December ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Capital expenditure
Major projects 92 156 316 561 1,192
Minor and maintenance 319 238 453 578 821
Total 411 394 769 1,139 2,013

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South32’s capital expenditure decreased significantly across the period from FY2012 to FY2014, reducing 62 per cent from US$2,013 million to US$769 million. In
H1 FY2015, FY2014 and FY2013, South32 focused on reducing discretionary capital expenditure.

No major investment projects relating to the South32 Businesses were approved by BHP Billiton during the period from FY2012 through to FY2014.
(f) Interest rates
During the Reporting Period, the majority of South32’s debt was raised under central BHP Billiton funding programs, and BHP Billiton has generally funded its businesses
through intercompany balances. Interest rate risk for South32 has been managed as part of the portfolio risk mitigation strategy of BHP Billiton’s central treasury function.
South32 was exposed to interest rate risk on its outstanding borrowings, primarily on net borrowings from BHP Billiton. Historically, interest rate exposure has been
managed under BHP Billiton’s policy for interest on borrowings to be on a US dollar floating interest rate basis. Deviation from this policy required the prior approval of
BHP Billiton’s Financial Risk Management Committee and was managed within the Cash Flow at Risk framework, which is described in note 23 Financial risk management
to the historical combined financial information in Annexure 1. Interest rates on internal borrowings and receivables from BHP Billiton are generally on a floating interest
rate basis.

11.3 OPERATING RESULTS – UNDERLYING EARNINGS


As discussed in Section 3.3 of Annexure 3, Underlying Earnings will be the key measure that South32 management uses internally to assess the performance of the South32
Group. Underlying Earnings is included in note 2 Segment reporting to the historical combined financial information in Annexures 1 and 2. Underlying Earnings is
reconciled to profit/(loss) after taxation as set out below.

Table 11.10: Underlying Earnings

6 months ended December 12 months ended June


US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Profit/(loss) after taxation 738 358 217 (1,304) 1,433
Earnings adjustments – refer Section 11.5(d) (204) 11 397 2,059 (175)
Underlying Earnings 534 369 614 755 1,258

11.4 CONSOLIDATED RESULTS – OVERVIEW


(a) Half year ended 31 December 2014 compared with half year ended 31 December 2013
South32’s revenue in H1 FY2015 was US$5,040 million, a decrease of US$308 million, or six per cent, from US$5,348 million for the corresponding period H1 FY2014.
The revenue decrease can be largely attributed to Cannington (US$119 million) and Australia Manganese (US$111 million) with offsets at all other South32 Businesses,
in particular at Worsley (US$96 million increase in group production revenue). In addition revenue from third party products decreased by US$372 million.
The decrease in revenue was more than offset by a decrease in operating cash costs of US$638 million resulting in an increase in Underlying EBITDA of US$330 million
from the corresponding period.
Depreciation and amortisation in H1 FY2015 of US$506 million was US$40 million higher than the corresponding period in H1 FY2014. As a result, Underlying EBIT in
H1 FY2015 increased by US$290 million to US$800 million. Despite the challenging environment, South32 achieved an Underlying EBIT margin of 16.6 per cent excluding
the impact of third party sales.
South32’s Underlying Earnings in H1 FY2015 were US$534 million, an increase of 45 per cent from US$369 million in H1 FY2014.
(b) Year ended 30 June 2014 compared with year ended 30 June 2013
South32’s revenue in FY2014 was US$10.4 billion, a decrease of US$1.7 billion, or 14 per cent, from US$12.1 billion in the corresponding period. The revenue decrease
was across most South32 Businesses with Illawarra Metallurgical Coal (US$409 million), Cannington (US$286 million) and Cerro Matoso (US$208 million) being the most
significant. In addition, revenue from third party products decreased US$401 million.
The decreases in revenue at Illawarra Metallurgical Coal and Cannington were primarily due to substantially lower realised prices, which decreased revenue by US$263
million and US$143 million, respectively. Lower volumes at Cerro Matoso decreased revenue by US$93 million.
Despite the decrease in revenue of US$1.7 billion, total operating cash costs decreased by US$1.6 billion resulting in a decrease in Underlying EBITDA of only US$63
million, or three per cent, to US$2,055 million. Increases in Underlying EBITDA for South Africa Energy Coal (US$82 million), Worsley Alumina (US$102 million) and
Brazil Aluminium (US$83 million) were more than offset by decreases for Cannington (US$191 million), Illawarra Metallurgical Coal (US$167 million) and Cerro Matoso
(US$147 million).

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Depreciation and amortisation in FY2014 of US$985 million was US$21 million higher than the prior year. As a result, Underlying EBIT in FY2014 declined by US$84
million to US$1,070 million, substantially in line with the fall in Underlying EBITDA. Despite the challenging environment, South32 achieved an Underlying EBIT margin
of 11.3 per cent excluding the impact of third party sales.
South32’s Underlying Earnings in FY2014 were US$614 million, a decrease of 19 per cent from US$755 million in FY2013.
Adjustments between Underlying Earnings and profit/(loss) after taxation, as set out in Section 11.5(d), were US$397 million in FY2014, down from US$2,059 million in
FY2013.
Attributable profit in FY2014 was US$132 million compared to a loss in FY2013 of US$1,467 million.
South32’s strong cash generating capacity was reflected in an increase in net operating cash flows to US$1,670 million in FY2014, an increase of 17 per cent from US$1,426
million in FY2013.
(c) Year ended 30 June 2013 compared with year ended 30 June 2012
South32’s revenue in FY2013 was US$12.1 billion, a decrease of US$1.7 billion, or 13 per cent, from US$13.8 billion in the corresponding period. The revenue decrease
was across most South32 Businesses with South Africa Energy Coal (US$436 million), Illawarra Metallurgical Coal (US$414 million) and Cannington (US$225 million)
being the most significant. In addition, revenue from third party products decreased US$696 million. The increase in production from the ramp up of an expansion project at
Worsley Alumina contributed to an increase in revenue of US$138 million.
The decrease in revenue in South Africa Energy Coal and Illawarra Metallurgical Coal were primarily due to lower realised prices of US$366 million and US$657 million,
respectively. Lower volumes at Cannington decreased revenue by US$138 million.
The decrease in revenue of US$1.7 billion was partially offset by a decrease in operating cash costs of US$1 billion, which led to a decrease in Underlying EBITDA of
US$713 million, or 25 per cent, to US$2,118 million. Increases in Underlying EBITDA at Australia Manganese (US$164 million), Worsley Alumina (US$127 million) and
South Africa Manganese (US$129 million) were more than offset by decreases in Illawarra Metallurgical Coal (US$516 million), South Africa Energy Coal (US$301
million), Cannington (US$242 million) and Cerro Matoso (US$183 million).
Depreciation and amortisation in FY2013 of US$964 million was US$59 million higher than the prior year. As a result Underlying EBIT in FY2013 declined by US$772
million to US$1,154 million, primarily as a consequence of the fall in Underlying EBITDA. Despite the challenging environment, the South32 Group achieved an
Underlying EBIT margin of 10.5 per cent.
South32’s Underlying Earnings in FY2013 were US$755 million, a decrease of 40 per cent from US$1,258 million in FY2012.
Adjustments between Underlying Earnings and profit/(loss) after taxation, as set out in Section 11.5(d), were US$2,059 million in FY2013, compared to a deduction of
US$175 million in FY2012.
Attributable profit in FY2013 was a loss of US$1,467 million compared to a profit in FY2012 of US$1,401 million.
Net operating cash flows of US$1,426 million declined by 40 per cent from US$2,393 million in FY2012.

11.5 OPERATING RESULTS


(a) Earnings movements
The following table describes the approximate impact of the principal factors that affected Underlying Earnings for H1 FY2015, FY2014 and FY2013:

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Table 11.11: Reconciliation of movements in Underlying Earnings for the period

6 months ended 12 months


December ended June
US$M H1 FY2015 FY2014 FY2013
Underlying Earnings reported in the prior period 369 755 1,258
Changes in Underlying EBIT
Change in volumes (29) (73) 5
Change in sales prices 23 (667) (1,354)
Price-linked costs 34 6 116
Net price impact 57 (661) (1,238)
Operating cash costs 155 243 256
Exchange rates 170 602 334
Inflation on costs (98) (229) (228)
Non-cash costs (10) 13 86
Change in costs 217 629 448
Other 45 21 13
Total changes in Underlying EBIT 290 (84) (772)
Net finance costs (38) (79) (15)
Taxation expense (87) 22 284
Underlying Earnings 534 614 755

The method of calculation of the factors that affected Underlying Earnings and the financial statement line items of revenue, expenses, net finance costs and taxation expense
that are affected by the factors are as follows:

Table 11.12: Method of calculation of factors affecting Underlying Earnings

Factor affecting Financial statement


Underlying Earnings Method of calculation line item affected

Change in volumes Change in volumes for each Business from the corresponding period to the current period multiplied by the prior Revenue and
period Underlying EBIT margin. expenses
Change in sales prices Change in average realised price for each Business from the corresponding period to the current period multiplied by Revenue
current period volumes.
Price-linked costs Change in price-linked costs for each Business from the corresponding period to the current period multiplied Expenses
by current period volumes.
Operating cash costs Change in total costs, other than price-linked costs, exchange rates, inflation on costs, non-cash costs and one-off Expenses
items as defined below for each Business from the corresponding period to the current period.
Exchange rates Change in exchange rate multiplied by current period local currency revenue and expenses. The majority of the Revenue and
South32 Group’s selling prices are denominated in US dollars and so there is little impact of exchange rate changes expenses
on revenue.
Inflation on costs Change in inflation rate applied to expenses, other than depreciation and amortisation, price-linked costs, exploration Expenses
and business development expenses.
Non-cash costs Includes non-cash items, mainly depreciation and amortisation. Expenses

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Factor affecting Financial statement


Underlying Earnings Method of calculation line item affected

Other Variances not explained by the above factors. Expenses


Net finance costs Change in net finance costs from the corresponding period to the current period. Net finance costs
Taxation expense Change in taxation expense from the corresponding period to the current period. Taxation expense

The following commentary describes the principal factors outlined in the table above for H1 FY2015, FY2014 and FY2013.

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
(A) Volumes
Lower volumes at a number of South32 Businesses reduced Underlying EBIT in H1 FY2015 by US$76 million; the major contributors were Cannington (US$40
million), Australia Manganese (US$27 million) and Illawarra Metallurgical Coal (US$8 million). This was offset by volume efficiencies attributed to productivity and
increased production in a number of South32 Businesses in H1 FY2015 that increased Underlying EBIT by US$47 million. This was predominantly due to Brazil
Aluminium (US$15 million), Worsley Alumina (US$12 million) and South African Energy Coal (US$7 million).
(B) Prices
Higher average prices for most commodities increased Underlying EBIT in H1 FY2015 by US$330 million; the major contributors were South Africa Aluminium
(US$121 million), Cerro Matoso (US$73 million), Worsley (US$59 million), Mozal Aluminium (US$45 million) and Brazil Aluminium (US$33 million). This was
partially offset by lower average prices that reduced Underlying EBIT by US$307 million, primarily at Illawarra Metallurgical Coal (US$102 million), Manganese
Australia (US$68 million), Cannington (US$72 million) and Manganese South Africa (US$41 million).
(C) Operating cash costs
A broad-based improvement in productivity underpinned a decrease in operating cash costs of US$155 million during H1 FY2015. The improvement in Underlying
EBIT was most pronounced at Illawarra Metallurgical Coal (US$139 million), Manganese Australia (US$21 million) and Manganese South Africa (US$21 million).
The improvement was partially offset by increased costs at Brazil Aluminium (US$41 million), Worsley Alumina (US$32 million) and South Africa Aluminium
(US$23 million). The reduction can primarily be attributed to reduced labour, maintenance and consumables costs.
(D) Exchange rates
A stronger US dollar increased Underlying EBIT by US$170 million in H1 FY2015. The benefit to Underlying EBIT was most pronounced in the South African
South32 Businesses, with the benefits at South African Energy Coal, South Africa Manganese and South Africa Aluminium being US$92 million in total. Average
and closing exchange rates for H1 FY2015 are set out in Section 11.2(b).
(E) Inflation on costs
Inflation had an unfavourable impact on all South32 Businesses and reduced Underlying EBIT by US$98 million during H1 FY2015. This was most notable in South
Africa, where South African Energy Coal, South Africa Manganese and South Africa Aluminium had a total impact of US$57 million.
(F) Non-cash costs
An increase in non-cash costs decreased Underlying EBIT by US$10 million during the period.
(G) Other
Other items increased Underlying EBIT by US$45 million.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
(A) Volumes
Lower volumes at a number of South32 Businesses reduced Underlying EBIT in FY2014 by US$170 million, primarily at Cannington (US$123 million) and Illawarra
Metallurgical Coal (US$23 million). This was offset by volume efficiencies attributed to productivity and increased production in a number of South32 Businesses in
FY2014 that increased Underlying EBIT by US$97 million. The major contributors were Australia Manganese (US$45 million) and South Africa Energy Coal
(US$34 million).
(B) Prices
Lower average sale prices for most commodities reduced Underlying EBIT by US$667 million in FY2014. The decreases were across all South32 Businesses except
Worsley Alumina where realised prices for alumina in FY2014 of US$318 per tonne were four per cent higher than FY2013, which increased Underlying
EBIT by US$55 million.

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For Illawarra Metallurgical Coal, there was a 22 per cent decline in the average realised price of coking coal to US$130 per tonne, which reduced Underlying EBIT by
US$263 million.
For Cannington, lower average realised prices for silver, which fell 26 per cent to US$20 per ounce, were offset by an increase in lead prices of 15 per cent to
US$2,344 per tonne, along with an increase in zinc prices resulting in a US$143 million decrease in Underlying EBIT.
Lower realised prices for aluminium at South Africa Aluminium (decrease of seven per cent to US$2,007 per tonne) and Mozal Aluminium (decrease of 10 per cent to
US$2,080 per tonne) resulted in reduced Underlying EBIT for South Africa Aluminium and Mozal Aluminium of US$79 million and US$24 million, respectively.
Lower realised prices for manganese ore and alloy reduced Underlying EBIT for South Africa Manganese and Australia Manganese by US$35 million and US$62
million, respectively.
Nickel prices rallied towards the end of FY2014 but remained lower on average for the period, reducing Underlying EBIT for Cerro Matoso by US$46 million.
Price-linked cost reductions increased Underlying EBIT by US$6 million during the period. Reductions in price-linked costs at a number of South32 Businesses
totalling US$68 million that increased Underlying EBIT were offset by higher costs at other South32 Businesses. Australia Manganese suffered the largest increase in
price-linked costs with a reduction in Underlying EBIT of US$41 million, followed by South Africa Energy Coal (US$10 million) and South Africa Aluminium
(US$10 million).
(C) Operating cash costs
A broad-based improvement in productivity underpinned a decrease in operating cash costs of US$243 million during FY2014. The improvement in Underlying EBIT
was most pronounced at South Africa Aluminium (US$142 million), Illawarra Metallurgical Coal (US$58 million) and South Africa Energy Coal (US$53 million).
The reduced cost was primarily for labour, maintenance and consumables.
(D) Exchange rates
A stronger US dollar increased Underlying EBIT by US$602 million in FY2014. The benefit to Underlying EBIT was most pronounced in the South African South32
Businesses, with the benefits at South Africa Manganese and South Africa Energy Coal being US$108 million each. Average and closing exchange rates for FY2014
and FY2013 are set out in Section 11.2(b).
(E) Inflation on costs
Inflation had an unfavourable impact on all South32 Businesses and reduced Underlying EBIT by US$229 million during FY2014. This was most notable in South
Africa and Australia, where the impact on Underlying EBIT was US$126 million and US$71 million, respectively.
(F) Non-cash costs
A reduction in non-cash costs increased Underlying EBIT by US$13 million during the period.
(G) Other
Other items increased Underlying EBIT by US$21 million.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
(A) Volumes
Higher volumes through productivity efficiencies at a number of South32 Businesses increased Underlying EBIT in FY2013 by US$141 million, primarily at
Illawarra Metallurgical Coal (US$100 million), Australia Manganese (US$15 million) and Cerro Matoso (US$14 million). This was offset by lower volumes at other
South32 Businesses, primarily at Cannington (US$112 million). Overall the impact of volumes on Underlying EBIT was an increase of US$5 million.
(B) Prices
Lower average sale prices for most commodities reduced Underlying EBIT by US$1,354 million in FY2013.
The decreases were across all South32 Businesses except Australia Manganese and South Africa Manganese where realised prices for manganese ore in FY2013 were
higher than FY2012, which increased Underlying EBIT by US$96 million.
For Illawarra Metallurgical Coal, there was a 35 per cent decline in the average realised price of coking coal to US$167 per tonne, which reduced Underlying EBIT by
US$657 million.
For South Africa Coal, there was a 23 per cent decline in the average realised price of export energy coal to US$75 per tonne, which reduced Underlying EBIT by
US$366 million.
For Cerro Matoso, there was a 15 per cent decline in the average realised price of nickel metal to US$15,442 per tonne, which reduced Underlying EBIT by US$133
million.
For Worsley Alumina, there was a nine per cent decline in the average realised price of alumina to US$307 per tonne, which reduced Underlying EBIT by US$90
million.
Lower realised prices for aluminium at South Africa Aluminium (decrease of seven per cent to US$2,154 per tonne) and Mozal Aluminium (decrease of two per cent
to US$2,318 per tonne) resulted in a reduction in Underlying EBIT for South Africa Aluminium and Mozal Aluminium of US$47 million and US$42 million,
respectively.

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For Cannington, lower average realised prices for silver, which fell 13 per cent to US$27 per ounce, along with a small decrease in zinc prices, were offset by an eight
per cent increase in lead prices, resulting in a US$114 million decrease in Underlying EBIT.
Price-linked costs increased Underlying EBIT by US$116 million during the period. Reductions in price-linked costs at a number of South32 Businesses totalling
US$145 million, primarily South Africa Aluminium (US$77 million), Illawarra Metallurgical Coal (US$31 million), Mozal Aluminium (US$16 million) and Cerro
Matoso (US$16 million) increased Underlying EBIT. The increase in Underlying EBIT was offset by higher price-linked costs at Australia Manganese and South
Africa Manganese totalling US$29 million.
(C) Operating cash costs
Improvement in productivity at a number of South32 Businesses underpinned a decrease in operating cash costs of US$256 million during FY2013. The improvement
in Underlying EBIT was most pronounced at Worsley Alumina (US$182 million), Australia Manganese (US$96 million) and Illawarra Metallurgical Coal (US$58
million) offset by higher costs at other South32 Businesses, primarily South Africa Aluminium (US$46 million) and Cerro Matoso (US$34 million). The reduced cost
was primarily for contractor labour.
(D) Exchange rates
The US dollar had little impact on Australian dollar and Colombian peso costs in FY2013 whereas a stronger US dollar against the South African rand and Brazilian
real resulted in an increase in Underlying EBIT of US$334 million in FY2013. The benefit to Underlying EBIT was most pronounced in the South African South32
Businesses, with benefits at South Africa Manganese (US$106 million), South Africa Energy Coal (US$86 million) and South Africa Aluminium (US$61 million).
Average and closing exchange rates for FY2013 and FY2012 are set out in Section 11.2(b).
(E) Inflation on costs
Inflation had an unfavourable impact on almost all South32 Businesses and reduced Underlying EBIT by US$228 million during FY2013. This was most notable in
South Africa and Australia, where the impact on Underlying EBIT was US$135 million and US$67 million respectively.
(F) Non-cash costs
A reduction in non-cash costs increased Underlying EBIT by US$86 million during the period.
(G) Other
Other items increased Underlying EBIT by US$13 million.
(b) Net finance costs
South32’s financing in historical periods was primarily provided on an intercompany basis by BHP Billiton. The analysis below is based on the historical combined financial
information.
(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Net finance costs decreased to US$37 million from US$108 million in H1 FY2015 compared to H1 FY2014. After excluding net finance costs associated with BHP
Billiton centrally managed borrowings, net finance costs in H1 FY2015 were US$2 million income compared to US$64 million expense in H1 FY2014.
(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Net finance costs increased to US$352 million from US$133 million in the corresponding period.
After excluding net finance costs associated with BHP Billiton centrally managed borrowings, net finance costs in FY2014 were US$262 million compared to
US$127 million in FY2013. This was primarily attributable to exchange rate variations on net debt, increasing from a US$16 million exchange gain in FY2013 to a
US$40 million exchange loss in FY2014, additional interest on finance leases of US$32 million and a US$40 million increase in interest expense on borrowings other
than bank loans.
(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Net finance costs increased to US$133 million in FY2013 from US$42 million in the corresponding period. After excluding net finance costs associated with BHP
Billiton centrally managed borrowings, net finance costs in FY2013 were US$127 million compared to US$84 million in FY2012. Interest paid on a number of
borrowings were higher in FY2013; however, there was no interest capitalised as compared to FY2012 when US$82 million was capitalised for the Worsley Alumina
expansion project.
(c) Taxation expense
The effective tax rates presented for the historical periods are based on BHP Billiton’s structure and may not reflect South32’s tax rate post Demerger. The tax rates set out in
the historical combined financial information have been impacted by items outside the ordinary course of business. The table below presents the reconciliation between the
statutory effective tax rate and the adjusted effective tax rate which is not an IFRS measure:

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Table 11.13: Adjusted effective tax rate

H1 FY2015 FY2014 FY2013 FY2012


Profit/(loss) Income tax Profit/(loss) Income tax Profit/(loss) Income tax Profit/(loss) Income tax
before tax expense before tax expense before tax expense before tax expense
US$M US$M % US$M US$M % US$M US$M % US$M US$M %
Statutory effective tax rate 1,214 (476) 39.2 422 (205) 48.6 (1,096) (208) (19.0) 2,018 (585) 29.0
Less:
Amounts excluded from net
finance costs (66) 20 130 (39) (10) 3 (86) 26
Amounts excluded from
Underlying EBIT (451) 27 296 (21) 2,117 (528) (134) 48
Exchange rate movements — 155 — 4 — 84 — 123
Remeasurement of deferred tax
assets associated with the
MRRT — 111 — — — 142 — (196)
Non-recognition of tax benefits
where tax benefit remains with
BHP Billiton — — — 27 — 251 — 44
Adjusted effective tax rate 697 (163) 23.4 848 (234) 27.6 1,011 (256) 25.3 1,798 (540) 30.0

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(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Total taxation expense, including royalty-related taxation, the tax impacts of amounts excluded from Underlying EBIT and exchange rate movements, was US$476
million, representing an effective tax rate of 39.2 per cent.
The remeasurement of deferred tax assets associated with the MRRT impacted taxation expense by US$111 million in H1 FY2015.
South32’s adjusted effective tax rate, which excludes the influence of exchange rate movements, remeasurements of deferred tax assets associated with the MRRT,
non-recognition of tax benefits when the tax benefit remains with BHP Billiton, the tax impact of earnings adjustments to net finance costs and the tax impacts of
amounts excluded from Underlying EBIT, was 23.4 per cent.
Adjusted effective tax rate is not an IFRS measure and is reconciled to the statutory effective tax rate in Table 11.13.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Total taxation expense, including royalty-related taxation, the tax impacts of amounts excluded from Underlying EBIT and exchange rate movements, was US$205
million, representing an effective tax rate of 48.6 per cent (FY2013: negative 19.0 per cent).
The remeasurement of deferred tax assets associated with the MRRT had no impact on taxation expense in FY2014 (FY2013: increase of US$142 million). Royalty-
related MRRT credits in Illawarra Metallurgical Coal decreased taxation expense by US$40 million in FY2014 (FY2013: US$nil).
South32’s adjusted effective tax rate, which excludes the influence of exchange rate movements, remeasurements of deferred tax assets associated with the MRRT,
non-recognition of tax benefits when the tax benefit remains with BHP Billiton, the tax impact of earnings adjustments to net finance costs and the tax impacts of
amounts excluded from Underlying EBIT, was 27.6 per cent (FY2013: 25.3 per cent).
Other royalty and excise arrangements that are not profit-based are recognised as operating costs within profit/(loss) before taxation. These amounted to US$348
million during the period (FY2013: US$383 million).

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Total taxation expense, including royalty-related taxation, the tax impacts of amounts excluded from Underlying EBIT and exchange rate movements, was US$208
million, representing an effective tax rate of negative 19.0 per cent (FY2012: 29.0 per cent).
The MRRT increased taxation expense by US$142 million in FY2013 due to de-recognition of the tax base for MRRT purposes in Illawarra Metallurgical Coal
(FY2012: decrease of US$196 million).
South32’s adjusted effective tax rate, which excludes the influence of exchange rate movements, remeasurements of deferred tax assets associated with MRRT, non-
recognition of tax benefits when the tax benefit remains with BHP Billiton, the tax impact of earnings adjustments to net finance costs and the tax impacts of amounts
excluded from Underlying EBIT, was 25.3 per cent (FY2012: 30.0 per cent).
Other royalty and excise arrangements that are not profit-based are recognised as operating costs within profit/(loss) before taxation. These amounted to US$383
million during the period (FY2012: US$413 million).

(d) Earnings adjustments


Earnings adjustments are excluded from Underlying EBIT and Underlying Earnings in order to enhance the comparability from period to period of, and provide
clarity into, the underlying performance of South32’s operations.

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Table 11.14: Earnings adjustments

6 months 12 months
ended December ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Earnings adjustments to Underlying EBIT
Exchange gains on restatement of monetary items (82) (47) (68) (97) (100)
Impairment losses — — 327 2,225 108
Impairment reversals — (2) (8) (15) —
Fair value (gain)/loss on derivative instruments (5) 16 2 16 (122)
Dividends received from BHP Billiton (364) (11) (11) (12) (20)
Other:
Bayside closure costs
(excluding impairments) — — 138 — —
Gain on sale of Optimum coal rights — — (84) — —
Total earnings adjustments to Underlying EBIT (451) (44) 296 2,117 (134)
Earnings adjustments to net finance costs
Exchange variations on net debt (105) (1) 40 (16) (44)
Interest on borrowings from BHP Billiton 64 61 115 108 76
Interest income on loans to BHP Billiton (25) (17) (25) (102) (118)
Total earnings adjustments to net finance costs (66) 43 130 (10) (86)
Earnings adjustments to income tax expense
Tax effect of earnings adjustments to Underlying EBIT 27 8 (21) (528) 48
Tax effect of earnings adjustments to net finance costs 20 (13) (39) 3 26
Exchange rate movements 155 3 4 84 123
Remeasurement of deferred tax assets associated with the MRRT 111 (25) — 142 (196)
Non-recognition of tax benefits where benefit remains with BHP Billiton — 39 27 251 44
Total earnings adjustments to income tax expense 313 12 (29) (48) 45
Total earnings adjustments (204) 11 397 2,059 (175)

(1) Exchange gains on restatement of monetary items


South32’s functional and reporting currency is US dollars. Realised and unrealised gains and losses on restatement of monetary items denominated in local currencies
as a result of movements in exchange rates are recorded in profit or loss for the year.

(2) Impairment losses and impairment reversals


There were no impairments or impairment reversals recorded in H1 FY2015.
Total impairment losses in FY2014 were US$327 million. This primarily related to impairments at South Africa Energy Coal where impairments of property, plant
and equipment of US$244 million and of goodwill of US$48 million were recognised as a result of royalty legislation changes, a decline in export prices, a required
five per cent rail allocation to Junior BBBEE miners and increased geologic loss.
Total impairment losses in FY2013 were US$2,225 million. This primarily related to an impairment of assets at Worsley Alumina of US$2,190 million as a result of
expected continued strength in the Australian dollar and weak alumina prices.
Total impairments in FY2012 were US$108 million. This arose primarily as part of BHP Billiton’s regular portfolio review, as a result of which production at TEMCO
was temporarily suspended, Metalloys South Plant was permanently closed and the Samancor Manganese Gabon project was terminated. As a result, impairment
charges of US$93 million were recognised.

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(3) Derivative instruments


Hillside sources power from Eskom, the South African state utility, under long-term contracts, with prices linked to the LME price of aluminium or the producer price
indices for South Africa and the United States. The embedded derivatives in the host contracts are accounted for at fair value. The gain or loss on changes in the fair
value of these derivatives is recorded in profit or loss for the year.

(4) Bayside closure


As a result of the cessation of aluminium smelting activities at Bayside in June 2014, a charge of US$138 million was recorded (excluding US$29 million of
impairment of property, plant and equipment) representing closure and cessation costs.

(5) Optimum coal rights


Following the sale of the Optimum Colliery in FY2008, South32 retained the right to sell coal on behalf of the new owners, Optimum Coal Holdings (Pty) Ltd. This
right has now been sold and generated a profit on disposal of US$84 million.

(6) Dividends received from BHP Billiton Group companies


Dividends received from BHP Billiton Group companies are excluded from Underlying Earnings because these amounts will not continue following the Demerger.

(7) Earnings adjustments to net finance costs


Exchange variations on net debt are excluded from Underlying Earnings, consistent with exchange variations included in profit from operations.
Interest expense on borrowings from BHP Billiton Group companies and interest income on loans to BHP Billiton Group companies are excluded from Underlying
Earnings because these amounts will not continue following the Demerger.

(8) Earnings adjustments to income tax expense


The earnings adjustments to income tax expense include the tax effect of the adjustments to Underlying EBIT and net finance costs. Exchange rate movements relate
to the impact on income tax expense for companies in the South32 Group where the functional currency for taxation purposes is not US dollars. As a result, exchange
gains and losses are calculated differently for accounting and tax purposes. Remeasurement of deferred tax assets associated with the MRRT is excluded because the
tax has been repealed. Additional tax expense arising where the tax benefit of losses remains with BHP Billiton has been excluded from Underlying Earnings because
these amounts will not continue following the Demerger.

11.6 BUSINESS PERFORMANCE


The following tables provide a summary of revenue and Underlying EBIT for H1 FY2015, H1 FY2014, FY2014, FY2013 and FY2012 of the South32 Businesses. The use
of Underlying EBIT is explained in Section 11.3.

Table 11.15: Revenue contribution by Business

6 months 12 months
ended December ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue
Worsley Alumina 651 565 1,229 1,130 992
South Africa Aluminium 823 796 1,614 1,663 1,646
Mozal Aluminium 340 291 574 612 629
Brazil Aluminium 268 266 529 637 660
South Africa Energy Coal 683 639 1,247 1,458 1,894
Illawarra Metallurgical Coal 425 410 878 1,287 1,701
Australia Manganese 566 677 1,308 1,257 1,204
South Africa Manganese 386 350 788 856 932
Cerro Matoso 340 315 595 803 876
Cannington 486 605 1,079 1,365 1,590
Third party products 404 776 1,262 1,663 2,359
Intersegment revenue (332) (342) (659) (638) (648)
South32 Group 5,040 5,348 10,444 12,093 13,835

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Table 11.16: Underlying EBIT contribution by Business

6 months 12 months
ended December ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Underlying EBIT
Worsley Alumina 67 45 24 (115) (194)
South Africa Aluminium 167 48 121 1 (83)
Mozal Aluminium 70 (1) 16 (3) 18
Brazil Aluminium 101 (7) 44 (40) (80)
South Africa Energy Coal (9) (44) 4 (96) 226
Illawarra Metallurgical Coal 20 (8) (35) 154 659
Australia Manganese 162 216 414 436 282
South Africa Manganese 26 (9) 48 58 (51)
Cerro Matoso 86 1 (1) 155 337
Cannington 154 251 413 611 840
Third party products 30 28 29 63 94
Group and unallocated items (74) (10) (7) (70) (122)
South32 Group 800 510 1,070 1,154 1,926

(a) Worsley Alumina


Table 11.17: Worsley Alumina financial information
6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 651 565 1,229 1,130 992
Underlying EBITDA 143 108 162 60 (67)
Underlying EBIT 67 45 24 (115) (194)
Capital expenditure 27 22 56 154 900
Net operating assets 3,413 2,862 3,418 2,868 5,105
Production – alumina (kt) 1,953 1,970 3,916 3,675 2,917

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Alumina production decreased by one per cent to 1,953 kt for H1 FY2015.
Revenue in H1 FY2015 was US$651 million, an increase of US$86 million, or 15 per cent, from US$565 million in the corresponding period. The increase in revenue
at Worsley Alumina was primarily due to higher realised prices, which contributed to an additional increase of US$59 million. During the period, the average realised
price of alumina increased by 10 per cent to US$335 per tonne.
Underlying EBITDA for H1 FY2015 increased by US$35 million to US$143 million. Movements in finished goods inventory at the Alumina refinery contributed to a
reduction in Underlying EBITDA of US$44 million. This was offset by the impact of a stronger US dollar against the Australian dollar, which increased Underlying
EBITDA by US$12 million.
Underlying EBIT for H1 FY2015 was US$67 million, an increase of US$22 million from the corresponding period. An increased fixed asset base at H1 2015
contributed to a US$13 million increase in depreciation expense and non-cash costs, compared with the corresponding period.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Alumina production in FY2014 increased by seven per cent to a record 3,916 kt. An expansion project at Worsley Alumina, which commenced in FY2008 to increase
the capacity of the refinery from 3.5 Mtpa to 4.6 Mtpa (100 per cent) of alumina, reached nominal capacity during the year, resulting in the annual production record.
Revenue in FY2014 was US$1,229 million, an increase of US$99 million, or nine per cent, from US$1,130 million in the corresponding period. The increase in
revenue at Worsley Alumina was primarily due to the increase in volume noted above, which contributed to an increase in revenue of US$55 million, and to higher
realised prices, which contributed to an additional increase of US$55 million. Following the revision of pricing terms during the period, the average price of alumina
increased by four per cent to US$318 per tonne.

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Underlying EBITDA for FY2014 increased by US$102 million to US$162 million. The increase in production noted above resulted in an increase of US$58 million in
volume-related costs, with a net volume-related decrease in Underlying EBITDA of US$3 million. A reduction in consumable costs and equipment ‘debottlenecking’
(improving supply chain and processing efficiency and increasing the capacity of the refinery) contributed to the US$8 million of productivity cost efficiencies
achieved during the period. A stronger US dollar against the Australian dollar increased Underlying EBITDA by a further US$79 million. In contrast, increases in
costs attributable to inflation were US$25 million.
Underlying EBIT for FY2014 was US$24 million, an increase of US$139 million from the corresponding period. Non-cash costs contributed US$56 million in cost
efficiencies, which was driven by lower depreciation expenses following impairments recognised in the corresponding period.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Alumina production increased by 26 per cent in FY2013 to 3,675 kt, underpinned by the ramp up of the expansion project.
Revenue in FY2013 was US$1,130 million, an increase of US$138 million, or 14 per cent, from US$992 million in the corresponding period. The increase in revenue
at Worsley Alumina was primarily due to the increase in volume noted above, which contributed to an increase in revenue of US$237 million. In contrast, weaker
markets continued to challenge the business with a nine per cent decline in average realised price of alumina to US$307 per tonne, which reduced revenue by US$90
million.
Underlying EBITDA for FY2013 increased by US$127 million to US$60 million. Volume related costs increased by US$242 million in FY2013 in line with
productivity movements noted above, with a net volume related decrease in Underlying EBITDA of US$5 million. Productivity improvements enabled substantial
savings in operating cash costs of US$182 million to be achieved during the period, partially offset by the negative impact of inflation on costs which decreased
Underlying EBITDA by US$21 million.
Underlying EBIT for FY2013 was a loss of US$115 million, a decrease of US$79 million from the corresponding period. Non-cash costs contributed US$16 million
to the decrease in Underlying EBIT, which was driven by higher depreciation expenses following the completion of the Efficiency and Growth project.

(b) South Africa Aluminium

Table 11.18: South Africa Aluminium financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 823 796 1,614 1,663 1,646
Underlying EBITDA 201 84 190 73 (10)
Underlying EBIT 167 48 121 1 (83)
Capital expenditure 10 7 28 17 14
Net operating assets 1,195 1,399 1,195 1,382 1,528
Production – Aluminium (kt) 356 415 804 761 719

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Aluminium production at South Africa Aluminium decreased by 59 kt or 14 per cent to 356 kt in H1 FY2015.
Revenue in H1 FY2015 was US$823 million, an increase of US$27 million or three per cent from the prior period. The primary driver of this increase was the rise in
realised prices of aluminium, which rose 18 per cent to US$2,338 per tonne, resulting in a US$121 million increase in revenue. This was offset by a US$99 million
decrease in revenue following the cessation of smelting activities at Bayside in June 2014.
Underlying EBITDA increased by US$117 million in H1 FY2015 to US$201 million. The reduction in operating cash costs related to the cessation of smelting
activities at Bayside was US$113 million, resulting in a net increase to Underlying EBITDA of US$14 million. The weakening South African rand against the US
dollar resulted in a positive impact to Underlying EBITDA of US$18 million due to local currency costs. This was offset by an increase in structural operating-related
costs, raw materials, labour and price-linked costs of US$48 million.
Underlying EBIT increased by US$119 million in H1 FY2015 to US$167 million, in line with movements noted in Underlying EBITDA.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Aluminium production in FY2014 increased by 43 kt or six per cent to 804 kt, with Hillside reaching a new production record of 715 kt. This was partially offset by
reduced volumes at Bayside, which fell seven per cent to 89 kt in FY2014.

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Revenue in FY2014 was US$1,614 million, a decrease of US$49 million or three per cent from the prior period. The increase in production volumes contributed to a
US$93 million increase to revenue. This was offset by the fall in realised aluminium prices, which fell seven per cent to US$2,007 per tonne and resulted in a US$79
million reduction in revenue.
Underlying EBITDA increased by US$117 million in FY2014 to US$190 million. Volume-related cost variances at Hillside and Bayside were US$91 million,
resulting in a net volume-related increase to Underlying EBITDA of US$2 million. Efficiencies gained in electricity consumption and maintenance activities resulted
in US$142 million of operating cash cost savings and consequent increase to Underlying EBITDA. The impact of inflationary pressures on operating costs was a
reduction to Underlying EBITDA of US$22 million. The weakening South African rand against the US dollar resulted in a positive impact to Underlying EBITDA of
US$53 million due to local currency costs.
Underlying EBIT increased by US$120 million in FY2014 to US$121 million, in line with movements noted in Underlying EBITDA.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
The increased availability of pots in production in FY2013 contributed to a 42 kt increase in total production at Hillside and Bayside for the period.
Revenue in FY2013 was US$1,663 million, an increase of US$17 million from FY2012. The volume-related impact to revenue was an increase of US$78 million.
This was more than offset by the decrease in realised aluminium prices, which fell seven per cent to US$2,154 per tonne, resulting in a US$47 million reduction to
revenue.
Underlying EBITDA increased by US$83 million to US$73 million in FY2013. The volume-related cost impact was an increase of US$75 million resulting in a net
volume-related increase in Underlying EBITDA of US$3 million. Cost efficiencies noted in operating cash costs were offset by increased expenditure relating to
maintenance of the processing plant, resulting in a net decrease to Underlying EBITDA of US$46 million. Price-linked costs resulted in an increase to Underlying
EBITDA of US$77 million due to the decrease in the cost of alumina. Inflation in South Africa and the United States resulted in a reduction to Underlying EBITDA
of US$31 million. The weakening South African rand against the US dollar resulted in a US$61 million favourable impact on local currency costs and increase to
Underlying EBITDA.
Underlying EBIT increased by US$84 million from FY2012, in line with movements in Underlying EBITDA.

(c) Mozal Aluminium

Table 11.19: Mozal Aluminium financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 340 291 574 612 629
Underlying EBITDA 88 17 52 31 51
Underlying EBIT 70 (1) 16 (3) 18
Capital expenditure 5 3 8 7 9
Net operating assets 628 634 627 669 777
Production – aluminium (kt) 135 134 266 264 264

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Aluminium production remained fairly consistent at 135 kt over the period.
Revenue increased by US$49 million in H1 FY2015 to US$340 million, primarily driven by the impact of higher realised prices. Realised prices for aluminium
increased by 21 per cent to US$2,482 per tonne, which resulted in a US$45 million increase in revenue.
Underlying EBITDA increased by US$71 million from US$17 million in H1 FY2014 to US$88 million in H1 FY2015. The impact of higher realised prices noted
above was offset by a US$5 million increase in price-linked costs, relating to the cost of alumina. The focus on productivity improvements contributed to operating
cost efficiencies of US$31 million. Operating costs are subject to the impact of inflation on US dollar, South African rand and Mozambique metical denominated
costs, which resulted in a reduction to Underlying EBITDA of US$6 million. This was offset by the strength of the US dollar against both the South African rand and
Mozambique metical contributing to a US$6 million increase to Underlying EBITDA on the translation of local currency operating costs.
Underlying EBIT increased by US$71 million from a loss of US$1 million in H1 FY2014 to US$70 million in H1 FY2015 in line with movements in Underlying
EBITDA.

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(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Aluminium production remained fairly consistent at 266 kt over the period.
Revenue decreased by US$38 million in FY2014 to US$574 million, primarily driven by the impact of lower realised prices. Realised prices for aluminium decreased
by 10 per cent to US$2,080 per tonne, which resulted in a US$24 million reduction in revenue.
Underlying EBITDA increased by US$21 million from US$31 million in FY2013 to US$52 million in FY2014. The impact of lower realised prices noted above was
offset by a US$13 million saving in price-linked costs, relating to the cost of alumina. The focus on productivity improvements contributed to cost efficiencies of
US$15 million. Operating costs are subject to the impact of inflation on US dollar, South African rand and Mozambique metical denominated costs, which resulted in
a reduction to Underlying EBITDA of US$13 million. The strength of the US dollar against both the South African rand and Mozambique metical contributed to a
US$30 million increase to Underlying EBITDA on the translation of operating costs.
Underlying EBIT increased by US$19 million from a loss of US$3 million in FY2013 to US$16 million in FY2014 in line with movements in Underlying EBITDA.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Aluminium production at Mozal Aluminium in FY2013 remained unchanged with production of 264 kt.
Revenue in FY2013 was US$612 million, a decrease of US$17 million from FY2012. Realised prices for aluminium fell two per cent to US$2,318 per tonne in
FY2013, which resulted in a US$26 million decrease to revenue, net of price-linked costs.
Underlying EBITDA decreased by US$20 million to US$31 million in FY2013. Increased maintenance and electricity costs contributed to higher operating cash costs
of US$11 million and the impact of US, Mozambique and South African inflation further decreased Underlying EBITDA by US$12 million. The weakening
Mozambique metical and South African rand against the US dollar contributed to a US$25 million increase to Underlying EBITDA.
Underlying EBIT decreased by US$21 million to a loss of US$3 million in FY2013 due to the decrease in Underlying EBITDA.

(d) Brazil Aluminium

Table 11.20: Brazil Aluminium financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 268 266 529 637 660
Underlying EBITDA 140 35 127 44 3
Underlying EBIT 101 (7) 44 (40) (80)
Capital expenditure 5 7 9 6 12
Net operating assets 938 1,010 968 1,031 1,144
Production – alumina (kt) 680 633 1,262 1,205 1,235
Production – aluminium (kt) 26 63 104 154 170

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Alumina production at Brazil Aluminium increased by seven per cent in H1 FY2015 to 680 kt. In contrast, aluminium production decreased by 59 per cent to 26 kt in
H1 FY2015, driven by the decision to keep potlines II and III curtailed following the suspension of production at June 2014.
Revenue increased by US$2 million to US$268 million in H1 FY2015. Volume-related variances arising from the production results noted above, contributed to a
US$34 million reduction in revenue. Realised prices for aluminium and alumina rose 20 per cent to US$2,360 per tonne and 10 per cent to US$323 per tonne
respectively in H1 FY2015. The net impact of movements in realised prices year on year was a US$34 million increase in revenue.
Underlying EBITDA increased by US$105 million to US$140 million in H1 FY2015 from US$35 million in H1 FY2014. Volume-related savings in operating costs
were US$49 million, with a net volume-related increase in Underlying EBITDA of US$15 million. The impact of inflation on operating costs against both the US
dollar and the Brazil real resulted in a decrease to Underlying EBITDA of US$12 million. This was offset by the strengthening US dollar against the Brazil real which
contributed to a US$22 million increase to Underlying EBITDA. The continued suspension of production from potlines II and III resulted in excess contracted power
which was subsequently sold in the market at a positive margin, increasing Underlying EBITDA by US$90 million.
Underlying EBIT increased by US$108 million to US$101 million in H1 FY2015, in line with movements in Underlying EBITDA.

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(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Alumina production reached annual production records in FY2014, increasing by five per cent to 1,262 kt. This was achieved through faster turnarounds during
planned maintenance and structural improvements made to the plant equipment. In contrast, aluminium production decreased by 32 per cent to 104 kt in FY2014,
driven by the decision to suspend production from potlines II and III due to challenging market conditions in primary aluminium and increased costs.
Revenue decreased by US$108 million to US$529 million in FY2014. Volume-related variances driven by production results noted above, contributed to a US$77
million reduction in revenue. Realised prices for aluminium fell three per cent to US$2,000 per tonne in FY2014. Alumina prices rose one per cent to US$300 per
tonne in FY2014. The net impact of movements in realised prices year on year was a US$17 million reduction in revenue.
Underlying EBITDA increased by US$83 million to US$127 million in FY2014 from US$44 million in FY2013 Volume-related savings in operating costs were
US$94 million, with a net volume-related increase in Underlying EBITDA of US$17 million. The impact of inflation on operating costs against both the US dollar
and the Brazil real resulted in a decrease to Underlying EBITDA of US$11 million. This was offset by the strengthening US dollar against the Brazil real which
contributed to a US$8 million increase to Underlying EBITDA. The suspension of production from potlines II and III resulted in excess contracted power which was
subsequently sold in the market at a positive margin, increasing EBITDA by US$89 million.
Underlying EBIT increased by US$84 million to US$44 million in FY2014 in line with movements in Underlying EBITDA.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Aluminium production was reduced in FY2013 in an effort to reduce operational costs. This lead to a decrease of nine per cent to 154 kt. Alumina production fell two
per cent to 1,205 kt due to the high number of power sags.
Revenue fell US$23 million or three per cent to US$637 million in FY2013. The impact to revenue on the decrease in volumes was US$44 million. Aluminium prices
fell eight per cent to US$2,061 per tonne, with alumina prices falling nine per cent to US$296 per tonne, contributing to an overall decrease to revenue of US$13
million.
Underlying EBITDA increased by US$41 million to US$44 million in FY2013. Volume-related cost savings due to lower sales volumes were US$25 million with a
net volume-related decrease in Underlying EBITDA of US$19 million. Productivity improvements continued to advance in FY2013 leading to the achievement
of cost savings of US$22 million, while a stronger US dollar increased Underlying EBITDA by US$34 million. In contrast, the impact of inflation resulted in a
reduction to Underlying EBITDA of US$18 million. Excess electricity from reduced production was sold in the market at a premium, resulting in an increase to
Underlying EBITDA of US$32 million.
Underlying EBIT increased by US$40 million to a loss of US$40 million in FY2013 in line with movements in Underlying EBITDA.

(e) South Africa Energy Coal


Table 11.21: South Africa Energy Coal financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 683 639 1,247 1,458 1,894
Underlying EBITDA 83 54 197 115 416
Underlying EBIT (9) (44) 4 (96) 226
Capital expenditure 58 22 65 133 162
Net operating assets 1,014 1,313 989 1,334 1,425
Production – energy coal (kt) 16,525 14,973 30,384 31,627 33,279

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Energy coal production of 16,525 kt for H1 FY2015 was a 10 per cent increase from the corresponding period, as a direct result of yield gains from improved plant
availability.
Revenue in H1 FY2015 was US$683 million, an increase of US$44 million or seven per cent from the prior period. Higher production volumes noted above
contributed to a US$98 million increase in revenue. This was offset by a decrease in average realised export prices for thermal coal, resulting in a US$32 million
decrease in revenue, inclusive of price-linked costs. Realised export thermal coal prices fell 13 per cent to US$60 per tonne while the average realised domestic price
increased from US$22 per tonne in H1 FY2014 to US$23 per tonne in H1 FY2015. A stronger US dollar against the South African rand contributed to a US$18
million decrease in domestic local currency-based revenue.

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Underlying EBITDA increased by US$29 million to US$83 million in H1 FY2015. The impact of the increase in sales volumes on operational costs was US$90
million, resulting in a net volume-related increase in Underlying EBITDA of US$8 million. A reduction in labour and contractor head count contributed to cost
savings and an increase in Underlying EBITDA of US$47 million. These savings were offset by a US$42 million reduction in Underlying EBITDA due to the impact
of inventory movements on mining-related costs. Inflationary pressures in South Africa increased operating costs and reduced Underlying EBITDA by US$36 million.
This was partially offset by the benefit of translation of local currency operating costs which contributed to an increase to Underlying EBITDA of US$32 million.
Underlying EBIT increased by US$35 million to a loss of US$9 million in H1 FY2015, in line with movements in Underlying EBITDA noted above.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Energy coal production of 30,384 kt for FY2014 was a four per cent decrease from the prior period as a direct result of extended outages at both a local utility and the
Richards Bay Coal Terminal.
Revenue in FY2014 was US$1,247 million, a reduction of US$211 million or 14 per cent from the prior period. Lower production volumes noted above contributed to
a US$82 million reduction in revenue. A decrease in average realised prices for thermal coal resulted in a US$47 million decrease in revenue. Realised export thermal
coal prices fell 12 per cent to US$66 per tonne due to a combination of market conditions and a higher weighting of lower quality coal sales for FY2014 compared to
FY2013. The average domestic price realised decreased from US$23 per tonne in FY2013 to US$22 per tonne in FY2014. A stronger US dollar against the South
African rand contributed to a US$73 million decrease in domestic local currency-based revenue.
Underlying EBITDA increased by US$82 million to US$197 million in FY2014. The impact of the reduction in sales volumes on operational costs was US$116
million, resulting in a net volume-related increase in Underlying EBITDA of US$34 million. A reduction in labour, contractor and maintenance costs resulted in cost
efficiencies and an increase to Underlying EBITDA of US$53 million. Inflationary pressures in South Africa increased operating costs and reduced Underlying
EBITDA by US$65 million. This was more than offset by exchange gains realised on the translation of operating costs, which contributed to an increase to Underlying
EBITDA of US$182 million.
Underlying EBIT increased by US$100 million to US$4 million in FY2014, in line with movements in Underlying EBITDA noted above.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Energy coal production decreased by five per cent to 31,627 kt in FY2013 due to the depletion of Block A at Khutala in July 2012 and the impact of challenging
geological and mining conditions at Wolvekrans mine.
Revenue in FY2013 was US$1,458 million, a reduction of US$436 million or 23 per cent from FY2012. Volume-related variances contributed to a US$53 million
reduction in revenue. Realised export and domestic thermal coal prices fell during FY2013, resulting in a US$366 million decrease in revenue. The translation of
domestic local currency revenue into US dollars, resulted in an unfavourable reduction to revenue of US$59 million.
Underlying EBITDA decreased by US$301 million or 72 per cent to US$115 million in FY2013.
Volume-related operating cost variances were US$60 million, resulting in a net volume-related increase in Underlying EBITDA of US$7 million. Higher diesel,
labour and contractor and equipment maintenance costs resulted in a decrease to Underlying EBITDA of US$24 million. Inflationary pressures on mining and railage
costs contributed to a US$75 million reduction in Underlying EBITDA. The translation of operating costs resulted in a net increase to Underlying EBITDA of
US$174 million, due to the weakening South African rand to US dollar exchange rate.
Underlying EBIT decreased by US$322 million to a loss of US$96 million in FY2013. Further to the movements noted above, depreciation and amortisation expenses
increased US$21 million, resulting in a corresponding decrease to Underlying EBIT.

(f) Illawarra Metallurgical Coal

Table 11.22: Illawarra Metallurgical Coal financial information

6 months ended December 12 months ended June


US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 425 410 878 1,287 1,701
Underlying EBITDA 120 70 135 302 818
Underlying EBIT 20 (8) (35) 154 659
Capital expenditure 180 173 309 357 314
Net operating assets 1,534 1,313 1,384 1,238 1,058
Production – energy coal (kt) 880 741 1,539 1,278 1,305
Production – metallurgical coal (kt) 3,858 2,614 5,974 6,664 6,621

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(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Metallurgical coal and energy coal production in H1 FY2015 increased by 48 per cent to 3,858 kt and 19 per cent to 880 kt, respectively. The increase was due to
lower raw coal production out of the Dendrobium mine in H1 FY2014 as a result of extended outages.
Revenue in H1 FY2015 was US$425 million, an increase of US$15 million or four per cent from the corresponding period. The increase in raw coal production
contributed to a US$121 million increase in revenue compared with H1 FY2014. Furthermore, movements in the realised price of coal resulted in a decrease to
revenue of US$102 million. The realised price of hard coking coal and thermal coal decreased in H1 FY2015 by 22 per cent to US$110 per tonne and 17 per cent to
US$57 per tonne respectively.
Underlying EBITDA increased by US$50 million to US$120 million in H1 FY2015. Volume-related cost variances were US$129 million, resulting in a net volume-
related decrease in Underlying EBITDA of US$8 million. Cost efficiency savings were noted in raw materials, labour and contractors and mining costs resulting in an
increase to Underlying EBITDA of US$140 million. A stronger US dollar against the Australian dollar increased Underlying EBITDA by US$9 million.
Underlying EBIT increased by US$28 million from a loss of US$8 million in H1 FY2014 to a profit of US$20 million in H1 FY2015 in line with movements noted in
Underlying EBITDA.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Metallurgical coal production in FY2014 decreased by 10 per cent to 5,974 kt. The decrease was driven by an extended outage at the Dendrobium mine which
impacted performance in the first half of FY2014.
Revenue in FY2014 was US$878 million, a decrease of US$409 million or 32 per cent from the corresponding period. The fall in raw coal production contributed to a
US$132 million decrease in revenue compared with FY2013. The primary driver of the decrease in coal revenue was a 22 per cent decrease in the average realised
price of coking coal, which fell from US$167 per tonne in FY2013 to US$130 per tonne in FY2014. This movement in price had a US$263 million negative impact on
revenue.
Underlying EBITDA decreased by US$167 million to US$135 million in FY2014. Volume-related cost variances were US$109 million, resulting in a net volume-
related decrease in Underlying EBITDA of US$23 million. A one off cost incurred in FY2013 and benefits from the sale of cheaper coal produced in FY2013 all
contributed to cost efficiencies in FY2014 of US$58 million. A stronger US dollar against the Australian dollar increased Underlying EBITDA by US$78 million.
Underlying EBIT decreased by US$189 million to a loss of US$35 million in FY2014, compared with Underlying EBIT of US$154 million in FY2013. This
movement was primarily due to the decrease in Underlying EBITDA as well as additional depreciation due to an increased asset base following increased capital
investment and mining activity at West Cliff and Appin, which all had a corresponding decrease to Underlying EBIT of US$38 million.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Illawarra Metallurgical Coal achieved record annual production in FY2013, with metallurgical production increasing to 6,664 kt. The increase in volumes was driven
by increased capacity at West Cliff CPP and higher Dendrobium run-of-mine production.
Revenue in FY2013 was US$1,287 million, a decrease of US$414 million from US$1,701 million in FY2012. Despite an increase in production volumes contributing
to higher revenue of US$252 million, the fall in average realised prices caused a more than offsetting decrease to revenue of US$657 million. The decrease in
metallurgical coal prices reflected deteriorating market conditions in FY2013 compared to FY2012. These conditions saw the average realised price for hard coking
coal decrease to US$167 per tonne compared with US$255 per tonne, and thermal coal prices decrease to US$79 per tonne compared with US$101 per tonne.
Underlying EBITDA decreased by US$516 million to US$302 million from US$818 million in FY2012. Volume-related cost variances were US$152 million decrease
to Underlying EBITDA, resulting in a net volume-related increase in Underlying EBITDA of US$100 million. In addition a reduction in price-linked costs increased
Underlying EBITDA by US$31 million. Illawarra Metallurgical Coal achieved cost efficiencies totalling US$58 million in the period, largely due to the favourable
volume impact on operating cost efficiencies, partially offset by unfavourable inventory movements due to stockpile drawdowns.
Underlying EBIT decreased by US$505 million to US$154 million in FY2013, in line with the decrease in Underlying EBITDA offset by a reduction in depreciation
of US$11 million.

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(g) Australia Manganese

Table 11.23: Australia Manganese financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 566 677 1,308 1,257 1,204
Underlying EBITDA 215 252 505 499 335
Underlying EBIT 162 216 414 436 282
Capital expenditure 57 58 108 271 213
Net operating assets 890 887 825 846 621
Production – manganese ore (kt) 2,499 2,438 4,776 5,027 4,306
Production – manganese alloy (kt) 139 123 269 234 198

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Manganese ore production increased three per cent in H1 FY2015 to 2,499 kt. Manganese alloy production increased by 13 per cent in H1 FY2015 to 139 kt
compared to 123 kt in H1 FY2014.
Revenue in H1 FY2015 decreased by US$111 million to US$566 million. Despite the increase in production, lower sales volumes for ore resulted in an overall
decrease to revenue of US$39 million. Lower average realised prices of manganese ore fell 20 per cent to US$185 per tonne; whereas realised average prices for
manganese alloy rose 16 per cent to US$1,140 per tonne. The overall impact of changes in realised prices was a decrease to revenue of US$68 million.
Underlying EBITDA decreased by US$37 million to US$215 million in H1 FY2015. Volume-related cost savings of US$12 million were noted in the period, with a
net decrease of US$27 million to Underlying EBITDA. The reduction in revenue noted above had a corresponding US$32 million decrease in royalties and an
increase in Underlying EBITDA. Cost savings in raw materials and a reduction in headcount and contractor related activities resulted in a US$17 million increase to
Underlying EBITDA. Furthermore, the strength of the US dollar against the Australian dollar contributed to a US$10 million increase to Underlying EBITDA.
Underlying EBIT decreased by US$54 million to US$162 million in H1 FY2015. Non-cash movements of US$18 million were noted in H1 FY2015, following the
completion and capitalisation of the GEMCO Expansion Project.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Manganese ore production declined five per cent in FY2014 to 4,776 kt as GEMCO was affected by higher than usual rainfall during the wet season. Manganese alloy
production increased by 15 per cent in FY2014 compared to FY2013, which was affected by the temporary suspension of operations at TEMCO in FY2012.
Revenue in FY2014 increased by US$51 million to US$1,308 million. The decline in manganese ore production at GEMCO was more than offset by the increase in
manganese alloy production at TEMCO resulting in a net increase to revenue of US$101 million. Lower average realised prices of manganese ore and manganese
alloy, which fell four per cent to US$219 per tonne and down 20 per cent to US$1,025 per tonne respectively, contributed to a decrease in revenue of US$62 million.
Underlying EBITDA increased by US$6 million to US$505 million in FY2014. The impact of an overall increase in production and sales volume resulted in
additional operating and royalty costs amounting to a total of US$97 million. Inflationary pressures on operating costs resulted in a decrease to Underlying EBITDA
of US$15 million. This was more than offset by the strength of the US dollar against the Australian dollar, which contributed to a US$72 million increase to
Underlying EBITDA.
Underlying EBIT decreased by US$22 million to US$414 million in FY2014. Non-cash movements of US$22 million were noted in FY2014, reflecting additional
depreciation following the capitalisation of the GEMCO Expansion Project.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Manganese ore production increased by 17 per cent to 5,027 kt in FY2013, benefiting from the completion of the GEMCO Expansion Project. The US$167 million
(South32 share) Expansion at GEMCO delivered first production during FY2013. The project increased processing capacity from 4.2 Mtpa to 4.8 Mtpa (100 per cent
basis). Manganese alloy volumes ramped up in FY2013 to 234 kt, an increase of 18 per cent from FY2012, following the temporary suspension of operations at
TEMCO in the corresponding period.
Revenue in FY2013 increased by US$53 million or four per cent to US$1,257 million in FY2013 from US$1,204 million in FY2012. The increase in both ore and
alloy production and sales volumes contributed to an increase in revenue of US$74 million. Realised prices of manganese ore increased by eight per cent to US$227
per tonne, but was partially offset by the seven per cent decline in realised prices of manganese alloy which fell to US$1,282 per tonne, contributing to a US$54
million increase in revenue, net of price-linked costs.

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Underlying EBITDA increased by US$164 million to US$499 million in FY2013. The increase in profitability is largely due to unit cost reductions achieved at
GEMCO and TEMCO. Cost efficiencies of US$96 million were achieved through a reduction in operating cash costs for raw materials, mining consumables, labour
and fuel and energy and from the dilution of fixed costs associated with mining processes as a result of increased production volumes.
Underlying EBIT increased by US$154 million to US$436 million in FY2013, in line with movements in Underlying EBITDA.

(h) South Africa Manganese


Table 11.24: South Africa Manganese financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 386 350 788 856 932
Underlying EBITDA 63 21 120 111 (18)
Underlying EBIT 26 (9) 48 58 (51)
Capital expenditure 37 32 70 104 131
Net operating assets 802 813 790 845 786
Production – manganese ore (kt) 2,056 1,808 3,526 3,490 3,625
Production – manganese alloy (kt) 233 180 377 374 404

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Manganese volumes increased in H1 FY2015 compared with the corresponding period, with manganese ore volumes increasing 14 per cent to 2,056 kt and
manganese alloy volumes increasing 29 per cent to 233 kt.
Revenue in H1 FY2015 was US$386 million, a US$36 million increase or 10 per cent, compared to US$350 million in H1 FY2014. The volume-related impact to
revenue was an increase of US$87 million. Realised prices for manganese alloy declined three per cent to US$911 per tonne. The realised price of manganese ore
declined 16 per cent to US$117 per tonne. The overall impact was a decrease to revenue of US$32 million, net of price-linked costs.
Underlying EBITDA increased by US$42 million to US$63 million in H1 FY2015. Volume-related increases to operating costs were US$75 million, resulting in a net
volume-related increase in Underlying EBITDA of US$12 million. Productivity and operating efficiencies resulted in an increase to Underlying EBITDA of US$33
million. A stronger US dollar against the South African rand increased Underlying EBITDA by US$42 million.
Underlying EBIT increased from a loss of US$9 million in H1 FY2014 to a profit of US$26 million in H1 FY2014. The increase in Underlying EBIT is consistent
with movements noted in Underlying EBITDA.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Manganese volumes in FY2014 remained fairly consistent compared with the corresponding period, with one per cent increases achieved in both ore and alloy
volumes. Manganese ore volumes rose to 3,526 kt and manganese alloy volumes increased to 377 kt in FY2014.
Revenue in FY2014 was US$788 million, a US$68 million decrease or eight per cent, compared to US$856 million in FY2013. The volume-related impact to revenue
was a decrease of US$35 million. Realised prices for both manganese ore and alloys decreased over the period, with manganese ore prices falling 15 per cent to
US$131 per tonne and manganese alloy prices falling five per cent to US$990 per tonne. The overall impact was a decrease to revenue of US$25 million, net of price-
linked costs.
Underlying EBITDA increased by US$9 million to US$120 million in FY2014. Volume-related decreases to operating costs were US$27 million, resulting in a net
volume-related decrease in Underlying EBITDA of US$8 million. This saving was partially offset by additional operating cash costs incurred due to unplanned
shutdowns, which decreased Underlying EBITDA by US$16 million. A stronger US dollar against the South African rand increased Underlying EBITDA by US$108
million. In contrast, the impact of inflation on operating costs resulted in a decrease to Underlying EBITDA of US$39 million.
Underlying EBIT decreased from US$58 million to US$48 million in FY2014. The decrease reflected the increase in Underlying EBITDA which was more than
offset by an additional US$19 million in depreciation expense as a result of capitalisation of large projects during the period.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Manganese ore production decreased by four per cent to 3,490 kt in FY2013, following plant maintenance shutdowns at Mamatwan during the year. The permanent
closure of energy-intensive SiMn production in January 2012 resulted in a seven per cent decline in the production of manganese alloys. Revenue in FY2013
decreased by US$76 million or eight per cent to US$856 million from US$932 million.

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The volume-related impact from movements in production on revenue amounted to a decrease of US$28 million. Average realised prices for manganese ore rose
11 per cent to US$154 per tonne. In contrast the average realised price of manganese alloys fell 12 per cent to US$1,044 per tonne, resulting in a net decrease to
revenue of US$23 million.
Underlying EBITDA increased by US$129 million in FY2013 to US$111 million. Volume-related cost savings of US$28 million offset the US$28 million reduction in
revenue due to lower sales volumes. Positive efficiencies were achieved through the production of manganese ore, which more than offset the closure impacts of the
Metalloys South Plant and furnace instabilities on operating costs for FY2013. The inflation impact on these efficiencies resulted in a decrease to Underlying EBITDA
of US$29 million. The permanent closure of the Metalloys South Plant and the suspension of other minor capital projects resulted in a reduction to Underlying
EBITDA of US$49 million in FY2012, which was not noted in FY2013. In contrast, the weaker South African rand against the US dollar contributed to a US$106
million increase to Underlying EBITDA.
Underlying EBIT increased by US$109 million in FY2013 to US$58 million from a loss of US$51 million in the corresponding period. The increase reflected the
increase in Underlying EBITDA offset by additional depreciation of US$20 million.

(i) Cerro Matoso

Table 11.25: Cerro Matoso financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 340 315 595 803 876
Underlying EBITDA 113 43 87 234 417
Underlying EBIT 86 1 (1) 155 337
Capital expenditure 18 35 56 50 105
Net operating assets 854 937 860 990 1,003
Production – nickel (kt) 21 24 44 51 49

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Nickel production at Cerro Matoso in H1 FY2015 declined 13 per cent to 21 kt as a result of lower nickel grades.
Revenue in H1 FY2015 was US$340 million, an increase of US$25 million, or eight per cent, from US$315 million in the corresponding period. The average realised
nickel price rose 28 per cent in the period to US$16,190 per tonne, contributing to an increase in revenue of US$72 million. Lower production driven by lower nickel
grades resulted in a US$46 million decrease in revenue.
Underlying EBITDA for H1 FY2015 increased by US$70 million to US$113 million. The volume-related cost impact of the decrease in production was US$46
million, with a net nil volume-related impact to Underlying EBITDA. Savings of US$12 million were noted in labour related costs following reductions to headcount.
This was offset by increased mine operating costs and raw materials of US$24 million due to the impact of lower nickel grades on plant utilisation and nickel
recovery. In contrast, a stronger than average US dollar contributed to an increase in EBITDA of US$10 million.
Underlying EBIT increased by US$85 million to US$86 million in H1 FY2015 driven by the increase in Underlying EBITDA and decrease in depreciation and
amortisation of US$15 million.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Production at Cerro Matoso in FY2014 was affected by kiln and furnace outages, and lower nickel grades, causing a decrease in nickel production of 14 per cent to
44 kt compared with 51 kt in the corresponding period.
Revenue in FY2014 was US$595 million, a decrease of US$208 million, or 26 per cent, from US$803 million in the corresponding period. Nickel prices fell 14 per
cent in the period to US$13,222 per tonne, contributing to a decrease in revenue of US$46 million. Lower production driven by lower nickel grades and plant
performance resulted in a US$93 million decrease in revenue.
Underlying EBITDA for FY2014 decreased by US$147 million to US$87 million. The volume-related cost impact of the decrease in production was US$80 million,
with a net volume-related decrease in Underlying EBITDA of US$13 million. A reduction in headcount resulted in higher redundancy-related costs of US$19 million.
Non-cash costs also increased in the period by US$45 million, primarily driven by inventory adjustments following reserve restatements. These additional expenses
contributed to a US$76 million decrease in Underlying EBITDA. In contrast, a stronger than average US dollar contributed to an increase in EBITDA of US$4
million.
Underlying EBIT decreased by US$156 million to a loss of US$1 million in FY2014, driven by the decrease in Underlying EBITDA and a US$9 million increase in
depreciation expense following revisions made to the underlying mine asset base.

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(3) Year ended 30 June 2013 compared with 30 June 2012


Following the replacement of the line 1 furnace, nickel production at Cerro Matoso increased by four per cent to 51 kt.
Revenue in FY2013 was US$803 million, a decrease of US$73 million from FY2012. The decrease in revenue was primarily driven by lower realised nickel prices,
which fell by 15 per cent to US$15,442 per tonne, with a corresponding impact to revenue of US$133 million. This decrease was partially offset by a US$36 million
increase to revenue due to the production volumes noted above.
Underlying EBITDA for FY2013 decreased by US$183 million to US$234 million. The decrease in revenue of US$133 million due to lower realised prices had a
corresponding impact on Underlying EBITDA. Higher production volumes noted above had a corresponding increase in costs of US$22 million and a net volume-
related increase in Underlying EBITDA of US$14 million. Increases in operating costs contributed to a decrease in Underlying EBITDA of US$34 million.
Underlying EBIT for FY2013 decreased by US$182 million to US$155 million in line with the decrease to Underlying EBITDA noted above.

(j) Cannington
Table 11.26: Cannington financial information

6 months 12 months
ended December ended June
US$M, unless otherwise stated H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Revenue 486 605 1,079 1,365 1,590
Underlying EBITDA 183 272 460 651 893
Underlying EBIT 154 251 413 611 840
Capital expenditure 14 30 60 39 73
Net operating assets 192 244 234 206 194
Production – lead (kt) 99 94 187 213 239
Production – zinc (kt) 37 32 58 56 55
Production – silver (koz) 12,235 12,667 25,161 31,062 34,208

(1) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Lead and zinc production at Cannington increased in H1 FY2015 by five per cent to 99 kt and 16 per cent to 37 kt, respectively. Silver production decreased three per
cent in the period to 12,235 koz compared with 12,667 koz in H1 FY2014.
Revenue in H1 FY2015 was US$486 million, a decrease of US$119 million, or 20 per cent, from US$605 million in the corresponding period. Movements in the
production of lead, zinc and silver resulted in an overall decrease to revenue of US$46 million. Average realised prices of lead and silver both fell during the period;
with lead falling 19 per cent to US$1,950 per tonne and silver falling 15 per cent to US$17 per tonne. These decreases were partially offset by a 19 per cent increase in
the average realised price of zinc which rose to US$2,273 per tonne. The overall impact of movements in realised prices was a US$58 million decrease to revenue, net
of price-linked costs.
Underlying EBITDA for H1 FY2015 fell by US$89 million to US$183 million from US$272 million in H1 FY2014. The volume-related cost savings were US$5
million, resulting in a net volume-related decrease in Underlying EBITDA of US$41 million. Operating costs remained fairly consistent with the corresponding
period, with no significant changes impacting results. A stronger US dollar against the Australian dollar resulted in a positive exchange variance of US$7 million.
Underlying EBIT decreased by US$97 million to US$154 million in H1 FY2015, driven by the decrease in Underlying EBITDA and a US$8 million increase in
depreciation expense in line with the change in capital profile at Cannington.

(2) Year ended 30 June 2014 compared with year ended 30 June 2013
Lead and silver production at Cannington decreased in FY2014 by 12 per cent to 187 kt and 19 per cent to 25,161 koz, respectively. Zinc production increased slightly
in the period to 58 kt compared to 56 kt in the corresponding period.
Revenue in FY2014 was US$1,079 million, a decrease of US$286 million, or 21 per cent, from US$1,365 million in the corresponding period. Lower lead and silver
production contributed to a decrease in revenue of US$161 million, which was partially offset by the increase in zinc payable metals volume of US$16 million. Lower
average realised prices for silver, which fell 26 per cent to US$20 per ounce, were partially offset by the increase in realised prices of lead and zinc, which rose 15 per
cent to US$2,344 per tonne and 12 per cent to US$2,000 per tonne, respectively, resulting in a US$122 million decrease in revenue, net of price-linked costs.

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Underlying EBITDA for FY2014 decreased by US$191 million to US$460 million. Volume-related cost savings were US$21 million, resulting in a net volume-related
decrease in Underlying EBITDA of US$124 million. Operating costs remained fairly consistent with the corresponding period, with no significant changes impacting
results. A stronger US dollar against the Australian dollar resulted in a positive exchange variance of US$57 million.
Underlying EBIT decreased by US$198 million to US$413 million in FY2014, driven by the decrease in Underlying EBITDA and a US$7 million increase in
depreciation expense associated with capital profile and useful life adjustments made during the period.

(3) Year ended 30 June 2013 compared with year ended 30 June 2012
Lead production decreased 11 per cent with silver production decreasing nine per cent, with silver falling from 34,208 koz to 31,062 koz and lead from 239 kt to
213 kt. Zinc production remained consistent across both periods.
Revenue in FY2013 was US$1,365 million, a decrease of US$225 million, or 14 per cent, from US$1,590 million in FY2012. Lower production of lead and silver due
to a combination of lower lead grades and lower plant throughput resulted in a corresponding decrease to revenue of US$138 million. Average realised prices of silver
and zinc fell 13 per cent to US$27 per ounce and seven per cent to US$1,787 per tonne respectively, partially offset by the eight per cent increase in the realised price
of lead to US$2,030 per tonne resulting in a net decrease in revenue of US$109 million, net of price-linked costs.
Underlying EBITDA for FY2013 decreased by US$242 million to US$651 million. Savings in volume-related costs were US$25 million resulting in a net volume-
related decrease in Underlying EBITDA of US$113 million. Labour-related productivity cost efficiencies increased Underlying EBITDA by US$10 million, reflecting
insourcing initiatives and the broader optimisation of contractor activities across South32. Furthermore, the inflation factor on operating costs resulted in a US$11
million decrease to EBITDA.
Underlying EBIT decreased by US$229 million to US$611 million, driven by the decrease in Underlying EBITDA partially offset by reduced depreciation costs of
US$13 million following the change in accounting for a lease arrangement in the period from operating lease to finance lease.

11.7 THIRD PARTY SALES


South32 differentiates sales of its production from sales of third party products due to the significant difference in profit margin earned on these sales. The table below shows
the breakdown between South32’s production and third party products:

Table 11.27: Underlying EBIT and third party product margin

6 months 12 months
ended December ended June
H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
South32 production
Revenue 4,636 4,572 9,182 10,430 11,476
Related operating costs (3,866) (4,090) (8,141) (9,339) (9,644)
Underlying EBIT 770 482 1,041 1,091 1,832
Underlying EBIT margin 16.6% 10.5% 11.3% 10.5% 16.0%
Third party products
Revenue 404 776 1,262 1,663 2,359
Related operating costs (374) (748) (1,233) (1,600) (2,265)
Third party Underlying EBIT 30 28 29 63 94
Margin on third party products 7.4% 3.6% 2.3% 3.8% 4.0%

South32 engages in third party trading for the following reasons:


• production variability and occasional shortfalls from the South32 Businesses means that South32 sometimes sources third party materials to ensure a steady supply of
product to its customers;
• to optimise its supply chain outcomes, South32 may buy physical product from third parties;
• in order to support the development of liquid markets, South32 will sometimes source third party physical product and manage risk through both the physical and
financial markets.

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11.8 CASH FLOW ANALYSIS


Full historical combined cash flow statements are contained in the historical combined financial information in Annexures 1 and 2. The explanatory notes appear in note 20
Notes to the combined cash flow statement to the historical combined financial information in Annexure 1. A summary table has been presented below to show the key
sources and uses of cash.

Table 11.28: Cash flow


6 months 12 months
ended December ended June
US$M H1 FY2015 H1 FY2014 FY2014 FY2013 FY2012
Cash generated from operations 1,131 781 2,108 2,138 2,899
Dividends received and net interest paid 252 (37) (120) (15) 36
Taxation paid (134) (251) (318) (697) (542)
Net operating cash flows 1,249 493 1,670 1,426 2,393
Purchases of property plant and equipment (411) (394) (769) (1,139) (2,013)
Exploration expenditure (13) (14) (24) (29) (51)
Exploration expenditure expensed and included in operating cash flows 9 11 17 21 41
Purchases of intangibles — (1) — (20) —
Investment in financial assets (13) (12) (24) (21) (8)
Proceeds from sale of property, plant and equipment 6 11 48 64 —
Proceeds from financial assets 7 46 52 19 8
Net investing cash flows (415) (353) (700) (1,105) (2,023)
Proceeds from interest bearing liabilities 7 235 251 2,274 74
Repayment of interest bearing liabilities (103) (463) (456) (112) (366)
Proceeds from issue of shares 8,000 — — 9 —
Deposit with BHP Billiton (7,565) — — — —
Dividends paid (661) (343) (505) (2,296) (79)
Dividends paid to non-controlling interests (85) (52) (133) (59) (56)
Other financing activities (327) 298 (116) (107) 13
Net financing cash flows (734) (325) (959) (291) (414)
Net increase/(decrease) in cash and cash equivalents 100 (185) 11 30 (44)

(a) Half year ended 31 December 2014 compared with half year ended 31 December 2013
Net operating cash flows after interest and tax increased by 153 per cent to US$1,249 million for H1 FY2015. An increase in cash generated from operations of US$350
million was the major contributor to the increase.
Net investing cash outflows increased by 18 per cent to US$415 million. Purchases of property, plant and equipment in the period of US$411 million were slightly higher
than the previous period and related to minor and maintenance expenditure.
Net financing cash flows included the proceeds on the issue of shares to BHP Billiton of US$8.0 billion to enable the acquisition of the companies that will comprise
South32. During H1 FY2015, the proceeds were primarily placed on deposit with BHP Billiton. Dividend payments to BHP Billiton Group companies were US$661 million,
up from US$343 million in the corresponding period.

(b) Year ended 30 June 2014 compared with year ended 30 June 2013
Net operating cash flows after interest and tax increased by 17 per cent to US$1,670 million for FY2014. A US$379 million reduction in taxation paid was the major
contributor to the increase.
A US$405 million reduction in net investing cash outflows to US$700 million primarily reflects greater purchase of property, plant and equipment in FY2013 of US$1,139
million related to assets under construction in conjunction with capital expenditure on asset sustaining activities.
Net financing cash flows included repayment of borrowings of US$456 million and dividend payments of US$505 million paid to BHP Billiton Group companies partially
offset by proceeds from borrowings of US$251 million.

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(c) Year ended 30 June 2013 compared with year ended 30 June 2012
Net operating cash flows after interest and tax decreased by 40 per cent to US$1,426 million for FY2013. A US$761 million reduction in cash generated from operations
(after changes in working capital balances) was the major contributor to the decline. Higher net income tax paid further reduced net operating cash flows after interest and tax
by US$155 million.
Investing cash flows decreased by US$918 million, which primarily reflects greater purchase of property, plant and equipment in FY2012 of US$2,013 million related to
assets under construction in conjunction with capital expenditure on asset sustaining activities.
Net financing cash flows included proceeds from borrowings of US$2,274 million offset by dividend payments of US$2,296 million to BHP Billiton Group companies.

11.9 NET DEBT AND SOURCES OF LIQUIDITY


Historically, South32 has sourced debt and working capital requirements under the BHP Billiton centrally managed treasury function. The calculation of gearing based on the
historical combined financial information is not meaningful in light of the proposed settlement of outstanding intercompany debt balances prior to the Demerger. The table
below presents gearing based on South32’s pro forma balance sheet as at 31 December 2014:

Table 11.29: Pro forma balance sheet, gearing(a)

31 December
US$M 2014
Cash and cash equivalents (350)
Current external debt 282
Non-current external debt 742
Net debt 674
Net assets 12,950
Gearing 4.9%

(a) Current external debt, non-current external debt and net assets have been extracted without material adjustment from Table 10.5 in Section 10.7. Cash and cash
equivalents excludes restricted cash of US$14 million. Gearing is the ratio of net debt to net debt plus net assets.

(a) Capital management


On a pro forma basis, net debt, comprising interest bearing liabilities less cash and cash equivalents, was US$674 million at 31 December 2014 (as sourced from Table 10.5
in Section 10.7). Gearing, which is the ratio of net debt to net debt plus net assets, was 4.9 per cent at 31 December 2014 based on the pro forma balance sheet.
Pro forma cash at bank and in hand at 31 December 2014 was US$350 million. Included within this were short-term deposits at 31 December 2014 of US$7 million.
Restricted cash and cash equivalents of US$14 million were excluded.

(b) Funding sources


Funding has historically been provided through BHP Billiton’s centrally managed treasury function. Post-Demerger, South32 will source its own funding through long-term
facilities and other methods as deemed appropriate. Further details on South32’s anticipated funding structure can be found in Section 10.6.

(c) Quantitative and qualitative disclosures about market risk


South32’s primary market risks are identified in Section 11.2. A description of how South32 manages its market risks, including both quantitative and qualitative information
about its market risk sensitive instruments outstanding at 30 June 2014, is contained in note 23 Financial risk management to the historical combined financial information at
Annexure 1.

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12 INDEPENDENT ACCOUNTANT’S ASSURANCE REPORT

KPMG Transaction Services ABN: 43 007 363 215


A division of KPMG Financial Advisory Services Telephone: +61 3 9288 5555
(Australia) Pty Ltd Facsimile: +61 3 9288 6666
Australian Financial Services Licence No. 246901 DX: 30824 Melbourne
147 Collins Street www.kpmg.com.au
Melbourne Vic 3000
GPO Box 2291U
Melbourne Vic 3001
Australia

Private and confidential


The Directors
South32 Limited
108 St Georges Terrace
Perth WA 6000

16 March 2015

Dear Directors

Independent Accountant’s Assurance Report on the compilation of pro forma historical financial information and Financial Services Guide

Independent Accountant’s Assurance Report

Introduction
We have been engaged by the directors of South32 Limited (the “Company” or “South32”) to prepare this report on the compilation of Pro forma historical financial
information of South32 in connection with the demerger of South32 from BHP Billiton Limited and BHP Billiton Plc (the “Demerger”) and (l) the proposed primary listing
of South32 on the Australian Securities Exchange (the “Australian Listing”), (2) the proposed secondary listing on the Johannesburg Stock Exchange (the “JSE Listing”),
and (3) the proposed admission of the ordinary shares to listing on the Standard segment of the Official List of the UKLA Financial Conduct Authority and to trading on the
London Stock Exchange (the “UK Listing”) (together the “Transaction”).

The directors of South32 have prepared a single document dated on or about 16 March 2015 that will form the basis of:
• an Information Memorandum in respect of the Australian Listing (the “ASX listing document”);
• a prospectus in respect of the UK Listing (the “UK Prospectus”);
• a pre-listing statement in respect of the JSE Listing (the “JSE Pre-listing Statement”).

The ASX listing document, the UK Prospectus and JSE Pre-listing Statement are together referred to as the “South32 Documents”.

This report is intended to satisfy the requirements of paragraph 7 of Annex II of the Commission Regulation 809/2004/EC (the “Prospectus Directive Regulation”) and is
given for the purpose of complying with that paragraph.

KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG.

KPMG is an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity.

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Pro forma historical financial information
We have completed our assurance engagement to report on the South32 pro forma historical financial information, comprising the pro forma historical consolidated balance
sheet as at 31 December 2014, summary pro forma historical consolidated income statements for the half year ended 31 December 2014 and financial year ended 30 June
2014, summary pro forma historical consolidated cash flow statements before financing activities and tax and after capital expenditure for the half year ended 31 December
2014 and financial year ended 30 June 2014, pro forma net indebtedness summary as at 31 December 2014 and pro forma segment financial information for the half year
ended 31 December 2014 and the year ended 30 June 2014 as set out in Sections 10.3, 10.4, 10.5, 10.7, 10.8 and Annexures 3 and 4 of the South32 Documents (the “Pro
forma historical financial information”).

The Pro forma historical financial information has been prepared and compiled by the directors of South32 on the basis stated in Section 10.2 of the South32 Documents, for
illustrative purposes only, to provide information about how the: (1) events and transactions related to the Demerger; and (2) discontinued consolidation of the Manganese
business and subsequent accounting for South32’s equity interest as an equity accounted joint venture, might have affected the historical financial information presented on
the basis of the accounting policies adopted by South32 in preparing its historical combined financial information.

The historical combined financial information of South32 extracted by the directors of South32 from the Annexures 1 and 2 Historical combined financial information in
compiling the Pro forma historical financial information was reviewed, for the half year ended 31 December 2014, and was audited for the financial year ended 30 June
2014. The historical combined financial information for the financial year ended 30 June 2014 was audited by KPMG in accordance with International Standards on Auditing
and Australian Auditing Standards. The historical combined financial information for the half year ended 31 December 2014 was reviewed by KPMG in accordance with
ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ASRE 2410 Review of a Financial Report Performed by the
Independent Auditor of the Entity as issued by the Australian Auditing and Assurance Standards Board. The independent audit report and review report issued to the
Directors of South32 relating to this historical combined financial information was unmodified, however wording was added to emphasise the matter of basis of preparation.

Directors’ responsibilities for the Pro forma historical financial information


The directors of South32 are responsible for the preparation and compilation of the Pro forma historical financial information on the basis described in Section 10.2 of the
South32 Documents, including the selection and determination of the pro forma adjustments made to the historical combined financial information and included in the Pro
forma historical financial information and such basis being consistent with the accounting policies of South32.

The directors’ responsibility includes establishing and maintaining such internal controls as the directors determine are necessary to enable the preparation of Pro forma
historical financial information that is free from material misstatement, whether due to fraud or error.

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Our responsibility
It is our responsibility to form an opinion, as required by paragraph 7 of Annex II of the Prospectus Directive Regulation, about whether the Pro forma historical financial
information has been compiled by the directors of South32 on the basis stated and such basis is consistent with the accounting policies of South32, and to report that opinion
to you.

Basis of opinion
We have conducted our work in accordance with International Standard on Assurance Engagements (ISAE) 3420, Assurance Engagements to Report on the Compilation of
Pro Forma Financial Information Included in a Prospectus, issued by the International Auditing and Assurance Standards Board. This standard requires that we comply with
ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the directors of South32 have compiled the Pro forma historical financial
information on the basis stated.

In providing our report we are not responsible for updating, refreshing or re-issuing any audit reports or review reports previously made on any historical combined financial
information used in the compilation or preparation of the Pro forma historical financial information, nor have we, in the course of this engagement, performed an audit or
review of the financial information used in preparing the Pro forma historical financial information.

The purpose of the Pro forma historical financial information is to illustrate how the (1) events and transactions related to the Demerger; and (2) discontinued consolidation
of the Manganese business and subsequent accounting for South32’s equity interest as an equity accounted joint venture, might have affected the historical combined
financial information.

Due to its nature, the Pro forma historical financial information does not represent South32’s actual or prospective financial position, financial performance and/or cash
flows. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at the dates stated would have been as presented.

A reasonable assurance engagement to report on whether the Pro forma historical financial information has been properly compiled on the basis stated involves performing
procedures to assess whether the basis used by the directors of South32 in the compilation of the Pro forma historical financial information provides a reasonable basis for
presenting the significant effects directly attributable to the Transaction and to obtain sufficient appropriate evidence about whether:
• the related pro forma adjustments give appropriate effect to the basis stated;
• the Pro forma historical financial information reflects the proper application of those pro forma adjustments to the unadjusted historical combined financial
information.

The procedures selected depend on our judgment, having regard to our understanding of the nature of the Company, the Transaction in respect of which the Pro forma
historical financial information has been compiled and other relevant engagement circumstances.

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The engagement also involves evaluating the overall presentation of the Pro forma historical financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States and accordingly should not be relied
upon as if it had been carried out in accordance with those standards and practices.

Opinion
In our opinion:
• the Pro forma historical financial information has been properly compiled on the basis stated; and
• such basis is consistent with the accounting policies of South32.

Declaration for the purposes of the UK Prospectus


For the purposes of Prospectus Rule 5.5.3R (2)(f) of the Financial Conduct Authority we are responsible for this report as part of the UK Prospectus and declare that we have
taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely
to affect its import. This declaration is included in the UK Prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation.

Independence
KPMG Transaction Services does not have any interest in the outcome of the proposed Transaction, other than in connection with the preparation of this report and
participation in due diligence procedures for which normal professional fees will be received. KPMG is the auditor of BHP Billiton and South32 and from time to time,
KPMG also provides BHP Billiton and South32 with certain other professional services for which normal professional fees are received.

General advice warning


This report has been prepared, and included in the South32 Documents, to provide investors with general information only and does not take into account the objectives,
financial Situation or needs of any specific investor. It is not intended to take the place of professional advice and investors should not make specific investment decisions in
reliance on the information contained in this report. Before acting or relying on any information, an investor should consider whether it is appropriate for their circumstances
having regard to their objectives, financial situation or needs.

Restriction on use
Without modifying our opinion, we draw attention to Sections 10.1 and 10.2 of the South32 Documents, which describe the purpose of the Pro forma historical financial
information, included in the South32 Documents. As a result, the Pro forma historical financial information may not be suitable for use for another purpose. We disclaim any
assumption of responsibility for any reliance on this report, or on the Pro forma historical financial information to which it relates, for any purpose other than that for which it
was prepared.

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KPMG Transaction Services has consented to the inclusion of this report in the South32 Documents in the form and context in which it is included.

Accordingly, KPMG Transaction Services makes no representation regarding, and takes no responsibility for, any other statements, or material in, or omissions from, the
ASX listing document, the UK Prospectus and the JSE Pre-listing Statement.

Yours faithfully

Nick Harridge
Authorised Representative

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KPMG Transaction Services ABN: 43 007 363 215


A division of KPMG Financial Advisory Services Telephone: +61 3 9288 5555
(Australia) Pty Ltd Facsimile: +61 3 9288 6666
Australian Financial Services Licence No. 246901 DX: 30824 Melbourne
147 Collins Street www.kpmg.com.au
Melbourne Vic 3000
GPO Box 2291U
Melbourne Vic 3001
Australia

Financial Services Guide


Dated 16 March 2015

What is a Financial Services Guide (FSG)?


This FSG is designed to help you to decide whether to use any of the general financial product advice provided by KPMG Financial Advisory Services (Australia) Pty
Ltd ABN 43 007 363 215, Australian Financial Services Licence Number 246901 (of which KPMG Transaction Services is a division) (‘KPMG Transaction Services’),
and Nick Harridge as an authorised representative of KPMG Transaction Services, authorised representative number 405346 (Authorised Representative).
This FSG includes information about:
• KPMG Transaction Services and its Authorised Representative and how they can be contacted
• the services KPMG Transaction Services and its Authorised Representative are authorised to provide
• how KPMG Transaction Services and its Authorised Representative are paid
• any relevant associations or relationships of KPMG Transaction Services and its Authorised Representative
• how complaints are dealt with as well as information about internal and external dispute resolution systems and how you can access them;
• the compensation arrangements that KPMG Transaction Services has in place.

The distribution of this FSG by the Authorised Representative has been authorised by KPMG Transaction Services. This FSG forms part of an Independent Accountant’s
Assurance Report (Report) which has been prepared for inclusion in a disclosure document or, if you are offered a financial product for issue or sale, a Product Disclosure
Statement (PDS). The purpose of the disclosure document or PDS is to help you make an informed decision in relation to a financial product. The contents of the disclosure
document or PDS, as relevant, will include details such as the risks, benefits and costs of acquiring the particular financial product.

Financial services that KPMG Transaction Services and the Authorised • interests in managed investments schemes including investor directed
Representative are authorised to provide portfolio services;
• securities;
KPMG Transaction Services holds an Australian Financial Services Licence,
which authorises it to provide, amongst other services, financial product advice for • superannuation;
the following classes of financial products:
• carbon units;
• deposit and non-cash payment products;
• Australian carbon credit units;
• derivatives;
• eligible international emissions units,
• foreign exchange contracts;
to retail and Wholesale clients. We provide financial product advice when engaged
• government debentures, stocks or bonds;
to prepare a report in relation to a transaction relating to one of these types of
financial products. The Authorised Representative is authorised by KPMG
Transaction Services to provide

KPMG Financial Advisory Services (Australia) Pty Ltd is affiliated with KPMG.
KPMG is an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity.

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financial product advice on KPMG Transaction Services’ behalf. KPMG Transaction Services and its officers, representatives, related entities and
associates will not receive any other fee or benefit in connection with the provision
KPMG Transaction Services and the Authorised Representative’s of the Report.
responsibility to you
KPMG Transaction Services officers and representatives (including the Authorised
KPMG Transaction Services has been engaged by BHP Billiton Limited, BHP Representative) receive a salary or a partnership distribution from KPMG’s
Billiton Plc (BHP Billiton) and South32 Limited (South32) (Client) to provide Australian professional advisory and accounting practice (the KPMG
general financial product advice in the form of a Report to be included in ASX Partnership). KPMG Transaction Services’ representatives (including the
listing document (Document) prepared by BHP Billiton in relation to the proposed Authorised Representative) are eligible for bonuses based on overall productivity.
Demerger of South32, and listing on the Australian Securities Exchange Bonuses and other remuneration and benefits are not provided directly in
(Transaction). connection with any engagement for the provision of general financial product
advice in the Report.
You have not engaged KPMG Transaction Services or the Authorised
Representative directly but have received a copy of the Report because you have Further details may be provided on request.
been provided with a copy of the Document. Neither KPMG Transaction Services
nor the Authorised Representative are acting for any person other than the Client.
Referrals
KPMG Transaction Services and the Authorised Representative are responsible Neither KPMG Transaction Services nor the Authorised Representative pay
and accountable to you for ensuring that there is a reasonable basis for the commissions or provide any other benefits to any person for referring customers to
conclusions in the Report. them in connection with a Report.

General advice Associations and relationships


As KPMG Transaction Services has been engaged by the Client, the Report only Through a variety of corporate and trust structures KPMG Transaction Services is
contains general advice as it has been prepared without taking into account your controlled by and operates as part of the KPMG Partnership. KPMG Transaction
personal objectives, financial situation or needs. Services’ directors and Authorised Representatives may be partners in the KPMG
Partnership. The Authorised Representative is a partner in the KPMG Partnership.
You should consider the appropriateness of the general advice in the Report having The financial product advice in the Report is provided by KPMG Transaction
regard to your circumstances before you act on the general advice contained in the Services and the Authorised Representative and not by the KPMG Partnership.
Report.
From time to time KPMG Transaction Services, the KPMG Partnership and related
You should also consider the other parts of the Document before making any entities (KPMG entities) may provide professional services, including audit, tax
decision in relation to the Transaction. and financial advisory services, to companies and issuers of financial products in
the ordinary course of their businesses.
Fees KPMG Transaction Services may receive and remuneration or other
benefits received by our representatives KPMG entities have provided, and continue to provide, a range of audit and tax
services to the Client for which professional fees are received. Over the past two
KPMG Transaction Services charges fees for preparing reports. These fees will financial years ended, professional fees of US$57.1 million have been received
usually be agreed with, and paid by, the Client. In this instance, BHP Billiton has from BHP Billiton. None of those services have related to the Transaction or
agreed to pay KPMG Transaction Services time based fees of US$1.9 million for alternatives to the Transaction.
preparing the Report and US$7.3 million for other services provided relating to the
Transaction.

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No individual involved in the preparation of this Report holds a substantial interest Contact details
in, or is a substantial creditor of, the Client or has other material financial interests
You may contact KPMG Transaction Services or the Authorised Representative
in the Transaction.
using the contact details:
KPMG Transaction Services
Complaints resolution
A division of KPMG Financial Advisory
Internal complaints resolution process Services (Australia) Pty Ltd
10 Shelley St
lf you have a complaint, please let either KPMG Transaction Services or the
Sydney NSW 2000
Authorised Representative know. Formal complaints should be sent in writing to
PO Box H67
The Complaints Officer, KPMG, PO Box H67, Australia Square, Sydney NSW
Australia Square
1213. If you have difficulty in putting your complaint in writing, please telephone
NSW 1213
the Complaints Officer on 02 9335 7000 and they will assist you in documenting
Telephone: (02) 9335 7000
your complaint.
Facsimile: (02) 9335 7200
Written complaints are recorded, acknowledged within 5 days and investigated. As
Nick Harridge
soon as practical, and not more than 45 days after receiving the written complaint,
C/O KPMG
the response to your complaint will be advised in writing.
PO Box H67
Australia Square
External complaints resolution process NSW 1213
Telephone: (02) 9335 7000
If KPMG Transaction Services or the Authorised Representative cannot resolve
your complaint to your satisfaction within 45 days, you can refer the matter to the
Facsimile: (02) 9335 7200
Financial Ombudsman Service (FOS). FOS is an independent company that has
been established to provide free advice and assistance to consumers to help in
resolving complaints relating to the financial services industry.

Further details about FOS are available at the FOS website www.fos.org.au or by
contacting them directly at:

Address: Financial Ombudsman Service Limited, GPO


Box 3, Melbourne Victoria 3001
Telephone: 1300 78 08 08
Facsimile: (03) 9613 6399
Email: info@fos.org.au.

The Australian Securities and Investments Commission also has a freecall infoline
on 1300 300 630 which you may use to obtain information about your rights.

Compensation arrangements
KPMG Transaction Services has professional indemnity insurance cover as
required by the Corporations Act 2001(Cth).

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